Nanoco, having successfully concluded its litigation with Samsung, is now fully focused on expanding its business as a developer, manufacturer, and licensor of nanomaterials. The company possesses extensive expertise in quantum dots, a validated IP portfolio, and high-volume manufacturing facilities, all supported by a strong balance sheet. These factors combine to create a robust platform for growth. Strategic partnerships with STMicroelectronics and an Asian chemicals supplier position Nanoco to capitalise on the expected adoption of infrared sensors in mobile handsets and various other devices. If everything proceeds according to plan, the company could see a significant increase in revenues from late FY25 or FY26.
Market analyst Yole predicts substantial growth in the short-wave infrared camera market, estimating an increase from $429 million in 2021 to $4.1 billion by 2027. This growth is driven by the adoption of infrared technology in a wide range of lower-volume devices, with mobile handsets expected to follow from 2026 onwards, facilitated by the availability of significantly cheaper sensors. Quantum dots are emerging as a promising mass market solution, with Yole highlighting STMicroelectronics and Sony as likely leaders in capturing market share. While success for Nanoco is not guaranteed, the potential for a revenue increase remains plausible if plans are executed successfully, possibly as soon as late FY25.
Financially, Nanoco appears strong, with an estimated net cash of £20.0 million at the end of FY24. The company’s service sales provide good visibility, and the monthly cash burn rate is a manageable £0.3–0.4 million. Nanoco boasts high gross margins and the capacity to generate approximately $100 million in revenue without significant additional capital expenditure. Additionally, it has about £30 million in tax losses carried forward. These factors suggest that incremental revenues could significantly enhance earnings and cash flow. Even limited uptake of Nanoco-based sensors in niche applications could achieve the management’s break-even revenue run rate of around £8 million. Inclusion in high-volume models could potentially generate Nanoco’s estimated FY24 enterprise value (EV) of £15 million through one year’s free cash flow alone.
From a valuation perspective, Nanoco’s EV of £15 million seems to undervalue the company’s expertise, intellectual property, facilities, and customer relationships, as well as its earnings and cash flow potential. Achieving either the mid- or bull-case scenarios should result in considerable upside. Applying a realistic 10x EV/EBITDA multiple to the FY27 mid-case scenario yields a valuation of 46p, with the bull case scenario reaching 152p. The company’s IP, expertise, solid balance sheet, and low-cost operational model should offer substantial downside protection, making the risk-reward profile skewed favourably to the upside.
Nanoco Group PLC (LON:NANO) leads the world in the research, development and large-scale manufacture of heavy metal-free nanomaterials for use in displays, lighting, vertical farming, solar energy and bio-imaging.
