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Surface Transforms has announced a major contract win with a manufacturer of EVs. Lifetime revenue is estimated to be £27.5m. Our 2021e revenue forecast is lifted by c.80% and 2022e by c.120%. The improved OEM order book brings better visibility and stability to revenues. To fulfil the order, significant investments will be made in headcount, but the Group should now report a net profit in 2021e against our previous forecast for a loss. Additional working capital and capex are also required but the cash position should improve materially in time. The award demonstrates the performance, weight and environmental benefits of carbon ceramic discs when fitted to EVs. More orders from this customer and others should flow. We showed in our recent initiation note, Release the brakes, 19 August 2020, that the market opportunity for carbon ceramic discs is large, irrespective of whether for ICEs, EVs or hybrids. The Group is on-track to becoming a volume supplier to the industry. With increased estimates our valuation is lifted to 45p from 40p.
Companies: Surface Transforms Plc
CAP-XX Ltd* (CPX.L, 4.5p/£19.9m) | Gfinity plc* (GFIN.L, 3.8p/£28.9m) | MTI Wireless Edge Ltd* (MWE.L, 44p/£38.7m) | Newmark Security plc* (NWT.L, 1.175p/£5.5m)
Companies: CPX GFIN MWE NWT
Games Workshop’s (GAW) Q121 trading update was well ahead of expectations, indicating that the previously flagged strong post-lockdown demand has continued, helped by a major product re-release in the period. We upgrade our FY21e PBT forecast by 37% to £115.9m, reflecting higher revenue growth, c 12% versus 2% previously, and a higher operating margin pre-royalties of c 35% versus 27% previously. On our new forecasts the P/E for FY21 is 35.2x. The EV/sales multiple of 10.6x is a premium to GAW’s previous highest multiple.
Companies: Games Workshop Group Plc
The interim results confirm a strong performance in the period reflecting strategic management initiatives over the past two years, reductions in the cost base, a significant increase in marketing efficiency, positive market trends towards online ordering and a reduced competitive landscape due to COVID-19. Following our revenue and EBITDA upgrades earlier this month, our current year forecasts remain unchanged.
Companies: Eve Sleep Plc
The company has announced a major milestone contract agreement, its first for full series production of IHT products. The contract is with an Electric Vehicle (EV) manufacturer, with a maximum revenue value of £38m over the next three years. Recent market headwinds have understandably resulted in some slippage in half-year revenues and a reduction in profit. This is a significant milestone production agreement, with huge future upside potential from the wider adoption of IHT flexible printed circuit boards.
Companies: Trackwise Designs Plc
The most significant of several 2020 contract wins was announced on 14 September, from a new global customer, OEM 8. New order momentum is rising significantly. SCE’s position as one of only two global manufacturers of a new automotive component – carbon ceramic brake discs – is bringing a series of major opportunities. As a consequence of OEM 8, our 2022 sales estimates double. To be winning such orders shows that these exacting clients embrace SCE’s product, its robust supply chain and manufacturing. SCE also provides a £0.4m upgrade on recent sales revenue.
Gleeson’s FY20 outturn was in line with expectations (forecasts reintroduced in July), reflecting the impact of the COVID lockdown on the fourth quarter. FY21 began with a record order book and demand remains strong, reflecting the quality and affordability of Gleeson’s homes. The 2,000 home target has been reiterated for FY22 and, for Strategic Land, there are signs that housebuilders are returning to the market. Gleeson has a unique offering and, in our view, is well positioned to meet its medium term targets and to deliver substantial growth thereafter.
Companies: MJ Gleeson Plc
The COVID-19 pandemic has had a significant impact globally in many areas. While primarily a health issue, it has had wide-ranging implications for stock markets, which have now rallied after the plunge in share prices in mid-March when the full severity of the emerging pandemic became more widely appreciated. Nonetheless, the FTSE 100 Index remains almost 20% off its late February 2020 figure.
Companies: AVO ARBB ARIX CLIG DNL GDR ICGT NSF PCA PIN PXC PHP RECI STX SCE TRX SHED VTA YEW
Trackwise Designs has signed a three-year product manufacture and supply agreement with a UK electric vehicle OEM. The agreement is potentially worth up to £38m in total, subject to pricing revisions, and will generate up to £5.0m in revenues in FY21. This will be the first full series production of flexible circuits incorporating Trackwise’s Improved Harness Technology (IHT). The agreement represents a step change in sales as total revenues for H120 were £2.4m, of which IHT was only £0.3m.
Strong trading YTD; outlook cautiously optimistic
Companies: Team17 Group PLC
Red Dwarf, the very British sci-fi comedy franchise, ran for 11 seasons – most recently in 2017; and The Promised Land is a feature-length TV movie – out this year. Yes, the programme is an acquired taste. Strangely, too, many episodes are impacted by a virus or three (physiological, not main-frame).
Companies: WJG BKG CSP CRST MCS INL BDEV RDW GLE SPR TW/ PSN VTY GLV CRN ABBY BWY
Focusrite’s revenue has been driven by acquisitions against a period of tough comparatives for the core brands. Current trading looks more encouraging for the majority of the brands, which is leading to gross margin improvements and a better outlook for EBITDA margin. We upgrade EBITDA forecasts for FY20e and FY21e by c 7%, but a higher tax rate in FY21 limits EPS upgrades in that year. For FY20e, an EV/EBITDA of 15.4x and a P/E of 24.9x are above long-term averages.
Companies: Focusrite Plc
Today’s statement reveals incredibly robust Q1 trading across the Group’s brands and regions, with a positive outlook and guidance reinstated for the remainder of the financial year and beyond. In addition, the Group has announced the acquisitions of Oasis & Warehouse, bringing two well-recognised and complementary brands onto its platform. We believe the unprecedented disruption resulting from the COVID-19 pandemic has accelerated the channel shift to online where we see BOO as the clear winner, with an established and leading model positioned to consolidate the market.
Companies: boohoo group Plc
Edison Investment Research is terminating coverage on ADMIE Holdings (ADMIE), AJ Lucas Group (AJL), Australis Capital (AUSA), Elbit Medical Technologies (EMTC), Focusrite (TUNE) and PPHE Hotel Group (PPH). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Previously published reports can still be accessed via our website.
Surface Transforms makes advanced carbon ceramic brake discs for high performance cars. The discs offer significant weight, performance, durability and environmental benefits over conventional iron products; they are also becoming a crucial component in the development of EVs. Although more expensive to buy, the total lifetime cost can be competitive due to reduced wear and tear. Unusually for the automotive sector, there is only one main supplier of these discs, Brembo SGL. Surface Transforms, following years of investment, now offers a credible alternative for OEMs. Despite COVID-19 headwinds, recent news has been positive, including significant contract wins and the expansion of manufacturing capacity. The Group also recently completed an oversubscribed placing to improve its finances. The next 12-18 months will be tough for all suppliers to the automotive sector, but the Group has innovative and competitively priced products and a well invested manufacturing platform. The market opportunity is also very large, with current low levels of adoption for these discs. Our analysis of earnings sensitivity indicates significant potential upside. Customers are backing this team, and the dual-sourcing proposition, with new contracts. Surface Transforms is on-track to becoming a volume supplier to the OEMs.