Substantial new military opportunity
​Kromek announced this morning that it had successfully shipped the first 10,000 of its award winning D3S’ handheld devices (approx. 5.5k in H1’17) under the DARPA (Defense Advanced Research Projects Agency) SIGMA programme. Here SIGMA is aimed at preventing attacks from “dirty bombs†and other nuclear threats in the US and globally.
In addition, on Monday the group announced it had won 6 more contracts worth $3.1m in aggregate across 3 new and 3 existing clients, including the US Defense Threat Reduction Agency (DTRA) and the UK MoD (Ministry of Defence). The work is expected to be delivered over the next 6-24 months. In particular the 2 year $1.6m DTRA agreement is significant, since it opens up another multi-$100m opportunity to provide high performance and ruggedised products for military and similarly harsh environments. We suspect the devices will be based on the company’s D3S platform, which has recently been enhanced to cope with such homeland security and defence applications.
So why is all this important? Well not only does it once again demonstrate the scientific advantage, technological lead and delivery capability of the company, but for investors it also significantly enhances revenue cover, which we now pitch at around 80% for this year and a significant proportion next. Consequently, given the derisking of the outlook, FY18 forecasts have been introduced the 1st time, where we predict that Kromek will achieve another milestone by breaking even at the EBITDA level on turnover of £12.5m. Remember too that the firm secured >$30m of orders in FY16 – equivalent to a book to bill ratio of 2.5x – so momentum has been building for some time. Based on the robust backlog, our price target has been held at 45p/share, offering 80% potential upside from today.
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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