Kromek (LON:KMK)
Share price: 24.5p (-2.5%)
No. shares: 153m
Market cap: £37.5m
Interim Results for six months ended 31 October 2016
It remains in the category of unprofitable IPOs, sitting more than 50% down from the IPO price and now with 153 million shares outstanding, up from c. 108 million at admission. Unprofitable IPOs can sometimes be great opportunities, if the shareholder base is depressed, so they are worth a look.
In Kromek's case, there are a lot of promising signals in terms of the operations - contracts signed with customers from a variety of geographies and industries - so it remains possible that this could turn profitable in time, without needing to raise further funds.
Unlike some of the more speculative companies on AIM, this one has some serious intellectual assets, with 247 patents. It started life as a university spin-out, which is often a good sign.
Outlook: Broker sales forecast for the current financial year remains £8.9 million, rising to £12.5 million in FY 2017.
Today's outlook statement concludes as follows:
The momentum
of contract wins provides significant visibility of revenue. This
underpins the management team's belief in the sustained growth of the
business and commercial traction resulting from the increasing adoption
of CZT-based technology and other products. Consequently, the Board
looks to the future with confidence.
Cash flow: The operating cash flow movement (pre-working capital changes) was negative £0.6 million, and there was a further £1.9 million cash used in investing activities.
These negative movements were offset by positive working capital movements and research tax credits, so that free cash flow was negative £1.1 million for the six months.
Net cash: The company has £3.8 million in cash and a revolving credit facility with additional capacity, so it potentially has the cash resources to see it through to profitability.
My opinion: I never get involved when I feel that there is a risk of further dilution down the line, and even in the absence of dilution, very significant sales growth will be required in the coming years to justify a £37 million market cap.
But it does have some genuinely unique technology, so perhaps it will prove the doubters wrong!
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