Welcome to our new product “Friday Takeaway”
This will delve a little deeper on individual companies and focus on non-house stocks under £200m market capitalisation to help raise awareness
| Index | Thurs | Weeks change % |
|---|---|---|
| FTSE 100 | 8,232 | -0.5% |
| FTSE Small Cap | 6,924 | -0.3% |
| AIM All Share | 734 | unchanged |
ABDX- Flowing downhill
PRES- Streaming up
RDT- Ai Transformer
Final’s to June 2024 reported revenue grew 52% to £6.1m, with gross margins improving to 60% from 51%. The adjusted EBITDA loss of £1.1m is a significant improvement from last year’s £2.9m loss. The report included a month of the £0.7m IVDeology acquisition made in May as well as the cost of a new commercial office /laboratory opening shortly in the US .
ABDX is a lateral flow contract research (CRO) and contract development and manufacturing organisation (CDMO). In August, after the year end, £5.7m was raised at 9.75p which can be added to the Y/E net cash of £1.4m. A proportion of the funds acquired Compliance Solutions Group (CSG), a consultancy business specialising in meeting regulatory requirements in international IVD. In Vitro Diagnostics (IVDs) is the use of human tissues, such as blood and urine, by the medical device markets to determine a person’s health. The acquisition will cost a maximum of £3.2m with a moderate initial cash payment of £1.36m to be paid in three equal instalments.
The remaining funds will be invested into two divisions: CS (Life Sciences) and IVDeology which increases its services to both its CRO and CDMO clients. A potential new income stream is being developed by an investment in Analytical Laboratory services.
There are three institutional shareholders with around 9-10% each; Octopus Investments Limited, Canaccord Genuity Group and Mercia Ventures, while Rathbones Investment Management own 7.2%. The financial priority is to become cashflow positive by active cost management and the investment in growing new and existing revenues streams.
Comment: With the August fundraise, subsequent acquisitions and a potential new income stream, the shares seem attractive at below the recent placing price.
The specialist engineering group completed the sale of PT Precision Machined Components (PMC) to Raghu Vamsi Machine Tools, an Indian manufacturer of precision engineered components. It was sold for an initial enterprise value of £6.2m with the potential for a performance related increase to £7.7m.
PMC became a non-core business, as the strategic focus is the development and growth of Chesterfield Special Cylinders (CSC), which has over 100 years of building high pressure gas containment solutions. It claims to be one of five global companies able to deliver ultra larger cylinders. Its traditional markets are oil and gas and industrial, but with increasing interest from the defence and hydrogen energy sectors. Hydrogen is benefiting from the Net Zero focus and projects in Europe releasing state funding, with more decarbonisation projects planned. The division CSC’s revenue for the six months to March was lower at £6.5m due to a deferral of a major defence contract as well as operational delays.
The receipt of the £4.8m cash proceeds at completion repays a £1m loan and the net borrowing excluding asset finance of c. £0.9m leaves net cash of £2.9m. The proceeds of the sale of PMC are intended to repay the new Term Loan facility and fund strategic investment opportunities at CSC to support its growth in the hydrogen energy sector The recent trading update for the finals to September reduced EBITDA expectations to c. £0.9m, due to later than anticipated defence order placement and project delays in CSC giving an EBITDA /EV of just over 10x.
Comment: It’s on a moderate recovery rating without anticipating much CSC growth.
A recently announced potentially game changing contract was followed by a deeply discounted funding. The contract was for three-years and worth £2m from the procurement division of one of the world’s largest technology companies with the chance to expand into its other divisions and operations. RDT’s cloud-based AI and scalable platform enriches data, to provide insight into diversity and sustainability within the supply chain.
The funding raised £1.64m at 5p (before expenses) at a 50% discount and was supported by the Non-Ex Chairman for up to £264k, with 14% taken by EIS/VCT investors. The Company also issued a £1.2m 10% Five-year Convertible Loan Note and Canaccord Genuity Wealth Management , a substantial shareholder took £0.4m and Amati the remaining £0.8m, taking the full raise to £2.8m. The funds provide working capital to drive the business strategy towards profitability.
Significant market opportunities are highlighted particularly for its artificial intelligence solution, AiCE. The contract with the US tech company is a compelling proof-of-concept of its AI solution effectiveness in automating procurement data categorisation and classification. The sales pipeline is £3.3m, although timeframes to closing contracts can be protracted. The momentum seems to be building and discussions underway with sizeable new partners should lead to further contracts.
The business has been fundamentally transformed over the last 24 months and management say an inflection point has been reached. It is set to achieve positive adjusted EBITDA and cash generation monthly in the current year to April 2025.
Comment: The institutional supported funding and AI solution should lead to a rerating.
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