AGM’s prelims confirm a solid year of progress with customer engagement and technology development continuing despite the challenges of COVID from early 2020. The results are in line with expectations, with the benefits of last year’s cost realignment being seen in reduced losses and effective cash management. The market opportunity remains significant, as reflected by continued growth in the pipeline. Commercial highlights include the promising partnership with Blocksil, which should support revenue growth over coming periods, as should the recent expansion of the distribution network.
Companies: Applied Graphene Materials Plc
Applied Graphene Material’s (AGM’s) FY20 results show the beneficial impact of management’s decision in October 2019 to focus on dispersion and application technology to better support product development with those customers presenting the nearest-term revenue opportunities. Revenues increased by 66% year-on-year in FY20 to £83k and adjusted EBITDA losses narrowed by £1.5m to £3.1m. With three new customer products launched in FY20 and three launched so far in FY21, progress looks set to continue.
Adrian Potts, the CEO of Applied Graphene Materials (AGM), discusses the company’s commercial progress over the course of the past 12 months, which saw the launch of a number of coatings products based on AGM’s graphene dispersions. These products include industrial anti-corrosion products from Blocksil and Alltimes Coatings and retail products from Halfords and Hycote. He also highlights the progress made in the composite and functional materials markets and why initiatives to develop water-based dispersions are key to enlarging the addressable market. Finally, he explains how management has strengthened its routes to market and the actions the company has taken to mitigate the impact of COVID-19.
Applied Graphene Materials is a leading innovator in the manufacture and application of graphene. The company has developed a proprietary ‘bottom-up’ process for the production of high specification graphene and owns the intellectual property and know-how behind this process. The company’s immediate commercial focus is on the coatings market, where products based on AGM’s graphene dispersions can provide demonstrably improved corrosion protection versus incumbent technologies.
In October 2019 Applied Graphene’s (AGM’s) management announced it was re-aligning resources around dispersion and application technology to better support product development with customers presenting the nearest-term revenue opportunities. This focus supported six customer launches of coating products containing AGM’s graphene dispersion during calendar year 2019. These launches are for both mass-market and specialist applications. As a result of the ensuing uptick in product sales, revenues so far for FY20 are already 20% higher than the whole of FY19.
AGM’s interims contain no surprises, with EBITDA losses and net cash (£4.3m at 31st January) in line with our expectations. Commercial highlights of the period have been mainly focused on Coatings, as we have discussed previously (e.g. Halfords aerosol primer). Management continues to prioritise near term revenue opportunities, demonstrating the properties of graphene in dispersions and other formats that can be readily adopted in customers’ products. Having streamlined operations in Q4’19, the cash run way has been extended to Q4’21 and we look forward to further commercial progress over coming periods.
Today’s AGM statement focuses on recent customer product launches by James Briggs, Halfords, Alltimes and Blocksil, looking forward to their development over coming periods. The re-alignment process which commenced in October 2019 to extend AGM’s cash runway is now complete and the anticipated cost reductions (c.£1m per annum indicated at the time) have been achieved. Management’s ambition remains to become a global graphene market leader and we look forward to further updates as the year progresses.
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Treatt has once again delivered an exceptional performance in the first four months of FY21, with strong momentum across multiple categories contributing to growth. Operating margins have benefited from the improved product mix as Treatt continues to move up the value chain and partners with its customers to develop new products. Despite only being four months into the new financial year, the board is cautiously optimistic about continued growth and exceeding current market expectations. We raise our sales forecasts by 7–10% over the next three years and our operating profit and earnings forecasts by 20–32%. Our fair value also moves up to 870p.
Companies: Treatt plc
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Sunstone Metals (STM AU) – Drilling results from the Espiritu gold-silver prospect in Ecuador
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W Resources (WRES LN) – La Parilla Q4 production
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Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.
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Treatt has performed well during FY20 despite the pandemic. There was strong momentum across the tea, health & wellness, and fruit & vegetables categories, and citrus markets recovered as expected. The strong growth across the non-citrus segments is resulting in a slightly reduced dependence on citrus (now 50% of sales). The UK relocation was slowed down as a result of the first lockdown, but the building work is now complete and the move will begin in mid-2021. While management report a strong start to the new financial year, the outlook is understandably uncertain: demand is not expected to return to normal levels before the end of FY21 or into FY22, though management is confident the business is in the best possible shape to face the uncertainty. The FY20 results demonstrate this, with a good cash performance and a 9% increase in dividends implying management’s confidence in the year ahead.
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Power Metal Resources* (POW LN) / Kavango Resources (KAV LN) – $150,000 paid ahead of schedule to progress Botswana JV
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Companies: MKA ORM POW ALS ARK KAV RBW TSG VRS