Exponential growth now in sight
​Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, nuclear detection and security screening.
The potential for further major contracts remains promising. They would take time to flow through to the P&L, yet even so the immediate signs are promising. At the interims this morning LFL sales impressively climbed 19% to £3.8m, reflecting triple digit gains in Asia (eg medical products including BMD) and the UK, allied to a solid performance again from the US.
Better still, Kromek is on track to achieve our FY17 sales target of £8.9m supported by in excess of “85% visibility†(RNS), and higher H2 gross margins (ie Est 58% vs 53% in H1) as the business scales. H1’17 adjusted EBITDA of -£636k was in line with our expectations, or -£1,836k if one backs out a £1.2m forex benefit from the balance sheet translation of $ denominated assets and working capital (re £ weakness).
Despite absorbing £1.7m of capitalised R&D, H1 cash-burn was a modest £1.55m (vs -£3.9m H1’16 and -£2.6m H2’16), thanks to positive working capital and the receipt of £0.9m in R&D tax credits. Net funds closed October at a £2.3m, which should be sufficient until the group becomes self-funding in FY19, assuming things go to plan.
Kromek has already landed prestigious BMD and SPECT agreements with several blue-chip OEMs, which together are forecast to more than double revenues from circa £2.7m in FY17 to £6.5m next year. However, to us the biggest near-term opportunity relates to the further roll-out of its portable D3S ‘dirty bomb’ detectors, 10,000 such devices having already been shipped to the US Dept of Defense (DoD).
Looking ahead, visibility is building too for FY18 where we estimate there is now >50% cover of our £12.5m sales estimate - in turn driving adjusted EBITDA into the black at £0.3m. We make no change to our FY17 projections or 45p/share DCF valuation.
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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