Kromek: The future's bright, the future is CZT
Graphene may grab all the headlines, but there is another ‘wonder material’ being championed by Kromek, perhaps Britain’s most unassuming tech-rich University spinout. The miracle substance is ‘Cadmium Zinc Telluride’, or CZT for short, which is gaining real traction in the multi-$billion healthcare (eg CT), homeland security and nuclear detection markets.What makes it so special is its ability to generate much sharper images than existing X-rays and, importantly, at far lower radiation doses and in double quick time. So superior is the step-change in picture quality that we think CZT will leap from ‘cottage industry’ to ultimately dominate its target therapeutic areas.
Better still, this now seems to be happening with Kromek’s FY17 results today showing product revenues climbing 23% to £6.7m, representing 74% (65% LY) of the total (£9.0m). FY17 turnover and adjusted EBITDA (pre share-based payments) came in slightly up on our estimates at £9.0m (vs ED £8.9m and £8.3m LY) and -£1.5m (-£1.85m ED and -£2.4m LY) respectively. Albeit net cash was lower at £17.3m (vs ED £20.0m), reflecting £3.1m of up-front development expenses (shown in WIP) incurred on the potentially huge Chinese agreement that will be recovered as product shipments are made.
Looking ahead, we make no change to our FY18 projections, but for the first time introduce FY19 estimates, mirroring the improved visibility and management’s rising confidence. Note that for FY19 no large-scale D3S US city roll-out has been factored into the £16m turnover figure.
Accordingly, we have nudged up our valuation from 34p to 37p per share, but once again reiterate that this is conservative, assuming Kromek can successfully commercialise its leading position in several fast-growing, multi-$billion markets.
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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