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Seems like something is coming. They’re in round numbers
Thank you Damay.
The OO document essentially provides a scorecard for each quarter for 2024/2025 re the critical KPIs of sales, yield, effective capacity etc., so hopefully we'll be ticking these off as and when we get the quarterly trading updates.
You may be interested in the below, which formed part of MY due diligence when assessing this investment:
Theoritical post fund raise value = 1.81p (73% x 1p + 27% x 4p). This looks at the dilution and the market cap before the placing was speculated and the shorts drove it lower.
If management hit FY24Q3 targets and there's clear momentum in update, confidence and sentiment could step change, and then the post raise value can be reassessed in the light of the Q3/Q4 2023 fundraise (which was meant to be the final equity raise before EBITDA B/E and operational cash flow neutrality). Here 352m shares at 10p = £35.2m market cap, with £6m cash raised, with an EV of £28m. So on this adjusted basis the May 24 raise would be EV of £28m + £9m (new cash) = equity valuation of £37m, which equates to 2.85p a share, based on the 1.3bn now in issue. Given FY24Q3 update would be received in October 24, this would be my timeline, should all go to plan.
If KPIs are hit in Q4 this year (with TU in Jan 25) then this would be a significant milestone of EBITDA break even. The effective capacity KPI being hit will give confidence re FY25 sales of £28m and EBITDA of £3m, so an EV of minimum £45m, but with strong sentiment this could be in excess of £60m, given underlying contracts etc.
FY26 is of course the year at the heart of the management teams LTIP share scheme. My calculations based on the sales (£50m) and EBITDA (£13m) KPIs at the heart of the LTIP suggest a minimum EV of £130m (less net debt of £30m) = £100m with an implied share price of 7.7p. The capacity footprint to achieve this is being installed throughout FT25, so if quarterly KPIs are hit throughout 2025 then I am expecting this share price by Jan 2026. The net debt figure above factors in the forward looking CAPEX facility and the opening up of receivables financing in 2025, as SCE becomes bankable as a conventional proposition.
If we get to this point then the strategic plan of £100m capacity footprint becomes a realistic and executable plan based on the scale up experience acquired.
Obviously the market will determine the share price but the above will be guiding me in timings of further investments.
LatentValue, agree that the quarterly updates are the essential staging posts here. Q2 revenue must be £4m, absolute minimum, in line with the presentation around the open offer. As you say, with March revenue of £1.5m, you'd hope for more than £4m but of course rates of scrappage are also important here as they are what led to the rapid cash burn in late '23 and early '24. Best of luck with your new investment.
As a new LTH who has taken 0.8% of the shares post placing and fully aware of the scale up issues, clearly the news of the furnace issue was frustrating, but by deduction explains COO Easton's #1 issue in the OO presentation. Having led two start ups which got to £30m+ sales in a short space of time, I recognise the chaos that's going on behind the scenes operationally! Having the added layer of fundraising/investor comms is also a major distraction too, but comes with the territory.
Current output is not being affected and a short term fix of outsourcing a non-proprietorial element of the production process, seems sensible, given where they are. The complimentary furnace also seems to be performing above expectations, which is good to know when scaling up and acquiring duplicate kit.
The key thing is that when they update in July for the Q2 sales figures (which are now market expectations) they hit these. Bearing in mind they did £1.5m of sales in March, then even with this de-commisioning of defective kit and work around, this should be achievable. We need to hear more on the effective capacity implication of this work around vs £50m capacity that's being built by Q3.
If they hit EDITDA break even in Q4 this year (sales of £5.5m - £6m per quarter) and are cash neutral in Q1 next year, as per the worst case, then this business is capable of scaling up to the strategic plan case, although I expect they will attract opportunistic PE bidders well before then who will eventually auction the company to the Chinese industrial base, who will scale up again to make these discs smaller and cheaper and within the commercial range of most electric car manufacturers, thereby growing the market size considerably from the estimated £2b pa.
The past can't be changed and makes sense for the big bath write down approach now under negotiation with the auditors. The quarterly updates will be the ones to focus on as the business plan they laid out in the OO circular now is market expectation.
FWIW my investment plan is to keep adding if they start hitting quarterly plans. I expect there's lots of money waiting to go when there's demonstrable proof they can actually scale up production of this great product at acceptable yields, as the margins are very attractive.
Good luck to all!
The standard of communications is utterly woeful. Johnson cannot continue to operate like this - its utter chaos. Surely Haddock, the Board and Johnson surely must realise that stating that a furnace is now kaput would traise significant questions? And yet, they put out the statement. What a bunch of complete amateurs
I thought the new furnace was installed this year?
My best guess is that the first furnace was specced wrongly....................and may well have led to the 50% scrap rates last year.
SCE specialise in giving the least info possible, so we are left guessing.
The furnaces are now a major concern to me. They are fundamental to the business and if they are unreliable or just unsuitable, then what?
Production isn't working......they are outsourcing...........never margin enhancing. Next furnace to arrive is in Q4.
Seeing it is such a complex, difficult process I'm surprised there was anyone to outsource to ?????
I don’t believe that Liverpool will let SCE go bust.
https://www.liverpoolcityregion-ca.gov.uk/news/mayor-accelerates-growth-of-high-tech-brake-manufacturer-with-13-2m-investment
Does anyone read that and think they’ll let this gem go?
In other news, what interest rate is due on the loan?
I mean tbh, they’re not gonna scale up without more capex, that’ll need to come out of free cash flow once they can sort out wastage.
Trade finance may be available too so dilution again isn’t a certainty.
This really is last chance saloon. It’s no surprise that the accounts are taking time to be signed off as the auditors are now at risk. Plus there will be the risk of directors painting the rosiest picture possible as it’s likely Liverpool council will commit more funds at some point if they can see the wider economic benefit etc. so the auditors have to take into account all stakeholders who’ll use these accounts.
You pay your money and take your chances.
Yes there’s a high degree of risk, the share price reflects that. Risk and rewards are priced together, but if they can somehow get production working then this could easily do 5x in a short space of time.
I have sold...................lost all faith in management
Last 2 fund raises management has omitted lots of important info.........
Auditors forced the company to omit one of the two furnaces is junk.............now out-sourcing FFS
There is a £3m cost as another furnace will be required in the future................
Never invest in AIM......................
From April: “ The programme to install new capacity is proceeding to plan and all but one of the furnaces for the £50m sales per annum should be on site by mid-year.
The issue with the last furnace relates to site expansion rather than the machine itself. The protracted negotiations regarding the site expansion have now been concluded enabling the last furnace to progress.”
“ Capacity increases can also be achieved by internal work on already installed furnaces which, over time, can be substantial. The company has a number of these projects under way, they are progressing well and form part of 2024 capacity contingency plans.”
If that’s the case then the question is, how many furnaces are damaged and how long will the makeshift solutions work for/cost.
Andy is right, the accounts need to be filed before 30 June (6 months from the Y/E as opposed to the 9 months for private companies) however I'd watch out for a shortening of the accounting period which would give them a further 3 months to file in case there's an issue that cannot be resolved in the next 11 days. I'd wager that all of the issues in the accounts are already agreed with the auditors (makes sense to finalise before issuing the RNS) so I don't see an issue with issuing by the 30th June.
Going concern absolutely not in question, as the adjustments were non cash, plus there's now a significant buffer - what will be interesting will be any updated guidance on 2024.
FWIW my view is that they knew they're going to miss the 2023 numbers, and they are using this accounting adjustment (which is often something that's argued over with the auditors - I know this from both sides of the table) to dump 2023 numbers in the hope that there'll be a net benefit to 2024 figures, after all you may as well miss by a mile, a miss is a miss.
the accounts are not late (yet). the accounts are for the year ended 31st dec 2023, by law need filing by 30th june (and rns says expects to publish by late june). i note that the dec 2022 accounts were published 8 days late.
there is no come back to the supplier for the furnace as there will be a £3m tangible asset write off of it.
there must have been a lot of capitalised r&d in intangible assets in the year as they are taking a £6.2m hit , given they only had £2.5m at cost dec 2022.
the above two items will likley be shown as exceptional items when the ac****s are produced.
the change in revenue recognition means whatever they were guiding prior to this rns will now be £2m lower and this will be pushed into dec 2024 accounts and beyond.
i would expect net assets on the balance sheet to fall from £33m to low to mid twenty millions.
there is no risk of a going concern issue .
i'm surprised that their foreign currency exposure isn't hedged. shows lack of ability within the finance function.
how to trade:
in my view the time to buy this share will be a couple of days after the results are released as it should also coincide with the final churnings and flush of the last raise.
this is not financial advice do your own due diligence.
Didnt read the rns in full but the furnace issues may well expalin the scrap previously mentioned. Surely the supplier is at fault?
Very different animals - SCE has current sales, order book, OEMs.......Saietta had Tony Gott and his forensic eye...we have Bundred :)))
The furnace issue is new, not well documented. I think this has held up surprisingly well considering the rise over the last month. This cast doubt over the results and a chance of a jump in operational improvement. Seems to be one problem after another.
Personally I think there has been an over reaction to the RNS. It’s well documented the issues here, just need a little bit more time and patience.
Anyway, of course it’s your money and your call; I just thought I’d put my tuppence worth in.
Or this will do a ''Saietta.'' and enter administaration.
They’ve already given a worst-case scenario of £17m which will have the furnace issues built in.
Only thing I see happening is an accounting amendment to the forecast; if they have to move revenues from 2023 to future years, you’d imagine they have to do the same for 2024.
It’ll only be whatever the difference is between previous years coming in 2024 and 2024 going to future years - but with sales increasing that number is likely to be negative (but only from an accounting perspective)
Does anyone here think going concern is a huge risk here in the next few months if they can’t make and deliver what they need to?
Remember they built two or three new buildings (likely some with new state of the art furnaces a couple of years back) maybe this one is just as stated. Underperforming.
‘Outsourcing’
Wtf
Expensive and inefficient
Yes they should have given more info on the furnace issue and whether it will be replaced at no cost
Issues to iron out but just way to cheap.