Rare ‘hi-growth disrupter’ at modest price
Finding truly world class disruptive companies trading at attractive discounts to their intrinsic worth is the nirvana of most GARP investors. Particularly where these stocks address multi $bn markets, possess patented technology, enjoy wide economic moats and are expanding organically at double digit rates.Enter radiation detection specialist Kromek, which today reported FY19 turnover up 22.6% LFL to £14.5m (vs £11.8m LY), alongside a 4-fold increase in EBITDA (pre SBPs) to £2.0m (£0.5m). Better still momentum accelerated throughout the period, with H2’19 EBITDA coming in at £2.5m (margin 23.3%) on sales of £10.8m (£7.0m LY).
Sure the blow-out H2 numbers contributed towards a temporary build-up of ‘trade debtors & other receivables’ at yearend – mostly attributable to ‘Amounts Recoverable On Contracts’. Albeit the Board anticipate these AROC products will be shipped, invoiced and converted into cash over the next 6 to 18 months. Producing a rich source of future capital for strategic expansion opportunities, on top of the firm’s £15.2m of net cash as at April’19.
In terms of the numbers, we make no change to our forecasts, and reiterate the 35p/share valuation, underpinned by almost 80% FY20 revenue cover. We believe the stock trades at an unjustified discount to other ‘hi-tech disruptive’ peers across most metrics. Plus, if the company can secure any new major D3S deployments (say covering cities, military sites, border regions, etc), then this would materially enhance our numbers.
CEO Arnab Basu, adding "This was a milestone year as we delivered on all of our objectives, including our key target of growing adjusted EBITDA. Looking ahead, we entered the 2019/20 fiscal year in a stronger position than ever before. The momentum of new contract wins has continued, providing us with greater visibility over revenue. As a result, we are confident of delivering growth for full year 2019/20, in line with market expectations."
Kromek Group is a developer of radiation detectors based on cadmium zinc telluride, providing detection and characterization capabilities within the medical imaging, nuclear detection and security screening markets. Co. designs, develops and produces x-ray and gamma-ray imaging and radiation detection products.
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