Elektron Technology

www.elektron-technology.com TICKER: EKT     EXCHANGE: L

Elektron Technology is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. 


Elektron knocks it out the park
Published: Nov 01 2018

Elektron Technology is firing on all cylinders, with CEO John Wilson saying today that “the Board expects FY19 to be significantly ahead of market expectations,” after enjoying an “exceptional Q3”. Thanks to “record sales” of £8.8m (+13% LY) at Bulgin (re unprecedented demand), alongside a similarly impressive performance from EET (Optometry equipment), posting revenues up +33% to £0.8m. 
Better still, due to management’s continued focus on product profitability, augmented by positive operational gearing and in-house capacity improvements, Bulgin’s FY19 EBIT margins are anticipated to be c.30% (vs 26.4% LY & 25% H1). Substantially ahead of our previous forecast of 27.6%, and delivering an estimated 34% for H2.
Elsewhere Checkit has also made excellent progress, reporting Q3 turnover up 200% to £300k (£100k LY) – and completing the development of its next generation Work Management module, which added Android compatibility and GPS tracking. Both key system enhancements for customers, particularly outside the food industry, as evidenced by the recent adoption by the Blood Sciences Department of Leeds Teaching Hospitals NHS Trust (50 locations). 
So what does this all mean in terms of the numbers? Well in total, Q3’19 turnover came in at £9.9m (+16.5% vs £8.5m LY, & +17% YTD at £25.8m) with September net cash closing at an equally healthy £8.5m (vs £6.8m July). In turn, leading us to raise our FY19 revenue, EBIT and cash projections to £33.5m, £4.6m and £9.7m respectively vs £31.9m, £2.7m and £8.3m before. Indeed as an indication of the strong momentum behind the business, this is the fourth consecutive upgrade we have made in only 4.5 months.
Likewise our FY20 projections have been lifted too, thus boosting the overall SOTP valuation from 69p to 83p/share - split 62p Bulgin, 14p Checkit, 2p EET and 5p net funds.
John Wilson, CEO, will be presenting at our next Investor Forum on the 28th November.  Register to attend: 

Doing all the right things consistently well
Published: Sep 19 2018

Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence located in Cambridge.
For EKT - particularly in light of the difficult hand it was originally dealt – this morning’s ‘strong’ results are the culmination of years of hard work, and a reflection of the business’ resilience and quality.
In terms of the 1st half numbers, revenues and EBIT climbed to £15.9m (+17% LFL) and £1.4m (180%) respectively, thanks to a standout performance from Bulgin. Here “unprecedented demand” (bookings +10%) propelled turnover up +14.4% to £14.3m (£12.5m LY), EBIT 20% higher (£3.6m vs £3.0m) and operating margins to 25% (24% LY). Similarly, Checkit delivered impressive top line growth of 146% to £0.4m, aided by July’18 annualised revenues running at a £1.1m clip (vs £1.0m April and £0.5m LY) – with losses broadly flat at £2.2m (-£2.3m LY) mirroring its ambitious expansion plans. Optometry equipment maker EET made good progress too, breaking-even (-£0.2m LY) on revenues up 33% to £1.2m.
Elsewhere, net cash closed July at £6.8m (vs £2.1m LY & £5.2m Jan’18) and is set to rise to £8.3m by Jan’19. Implying to us that there is headroom available for possible synergistic M&A, albeit nothing is thought to be imminent & organic growth remains by far the #1 focus.
Alongside the improving outlook, the medium-long term prospects at each division are in our mind outstanding. For us, all of these three scenarios are perfectly feasible and not factored into the current share price. Consequently, although our forecasts remain unchanged, we think the broader risk/reward profile has improved, and accordingly have nudged up the SOTP valuation from 66p to 69p/share - split 49p Bulgin, 14p Checkit, 2p EET and 3p net funds.
Upgrading forecasts again
Published: Aug 09 2018

Disruptive technology is turning the world upside down. Look anywhere from online retailing, autonomous vehicles and social media, to big data, augmented reality and artificial intelligence. Life is changing, and fast. Similarly we think Elektron’s Checkit service is set to transform the workplace, simplifying everyday tasks such as cleaning schools, monitoring food safety and testing patient blood samples, whilst simultaneously delivering substantial time/cost savings, along with improving customer service and regulatory compliance.
So far 281 customers have signed up, generating annualised revenues of >£1m (vs £780k Jan’18 & £540k Jan’17) - including John Lewis, the NHS, Claridges, Alton Towers, Compass, Cambridge University and Center Parcs. The latter decided only last month to extend coverage from 2 to all of its 5 UK locations – “freeing up more than 20,000 hours of resource per year”.
Elsewhere, we think there are material opportunities in leveraging the data, where Checkit already collects >35m measurements/month. For instance, providing industry benchmarking services (re continuous improvement), and ‘anomalous’ data sets to other 3rd parties, say for advertising purposes.
So how is the business performing? Well encouragingly, the firm reported this morning that it is set to beat consensus estimates, thanks to record H1’19 sales (+14%)/orders at Bulgin, a 144% jump in turnover at Checkit to £0.4m (re contract implementations) and a 33% leap in EET revenues, reflecting the pull-through of orders and improved distribution. 
All told, group H1’19 sales came in at £15.9m or 16.9% above LY, driving est PBT to £1.4m and closing net cash of £6.8m, boosted by the £0.8m disposal of Queensgate Nano. CEO John Wilson, adding “strong double digit growth during H1’19 is representative of the multi-year transformation of our business. We now expect to be ahead of market expectations."
Lifting estimates & SOTP valuation to 66p/share
Accordingly, we have increased our FY19 turnover and adjusted PBT forecasts by 4% and 17% respectively to £31.9m (£29.8m LY) and £2.7m (£2.7m). We have nudged up the Jan’19 closing net cash position to £8.3m (£5.2m) and lifted the sum-of-the-parts (SOTP) valuation by 6.5% (or 4p) to 66p/share (see below) - split 46p Bulgin, 14p Checkit, 3p EET and 3p net funds. 
'Strong' start to the year
Published: Jun 20 2018

There is nothing wrong with banking a few profits after a parabolic move, especially when a stock becomes disproportionately large within one’s portfolio. Yet for Elektron, based purely on the fundamentals, we believe this would be a mistake despite the stock’s >5-fold rise since the 2017 lows. 
Indeed, this morning the company said that Bulgin was continuing to experience buoyant demand, with YTD performance ahead of plan. Supported by a ‘record orderbook’, driving H1 expected sales up at least 8% LFL to £13.5m (LY £12.5m).
Accordingly, we have increased our FY19 turnover and EBIT forecasts for the division to £27.5m (vs £27.3 LY) and £6.9m (£7.2m) respectively. Elsewhere, EET is making good progress too, and tracking full year estimates. While Checkit is in “advanced discussions” with several global businesses to adopt its disruptive technology. 
From a macro risk perspective, we understand Elektron has minimal exposure to the recently proposed ‘US-EU/Chinese’ trade tariffs, even though c.64% of revenues are generated outside the UK. Instead there may actually be a small positive forex benefit given $ appreciation vs the £ (6%) and Tunisian Dinar (10%) over the past 2 months. 
So what does this all mean? Well, in terms of the group our FY19 EBIT climbs from £2.0m to £2.3m – which in turn pushes the sum-of-the-parts (SOTP) valuation 2p higher to 62p/share.
Buy one, and get two for free
Published: May 17 2018

Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence located in Cambridge.
EKT has created its proprietary SaaS based Checkit service. Recognising that, by digitising the entire process of performing routine tasks, it could deliver substantial benefits in terms of efficiency, customer service, repeatability, transparency, operational management, safety and regulatory compliance. No wonder that a clutch of top-brands have already signed up. 
Checkit has now moved from start-up to commercialisation mode with a US soft-launch slated for late 2018, leveraging Los Angeles as an initial beach-head.This is not small beer either, as the Board reckon North American market is worth >£1.3bn alone, on top of the UK’s £272m. And we estimate that continental Europe and the rest of the world (RoW) would add another £1bn a piece. All told generating a >£3.5bn global addressable market.
We think Checkit is effectively given away in EKT’s stock price ‘for free’. You see, the vast bulk (91% FY18) of group turnover and all the profits/cash, is generated by Bulgin: a world-class designer/manufacturer of hermetically-sealed (ie air/water-tight), fail-safe circular connectors. Management have done an excellent job in boosting EBIT margins from 5.4% in FY13 to 26.4% in FY18 without unduly impacting the top line, since greater average selling prices and order sizes have more than compensated. 
Similarly we think Elektron Eye Technology is today being effectively being valued at zero when compared to EKT’s market cap. Its two main therapeutic areas being the early detection of Glaucoma and ‘age-related macular degeneration in patients. It is estimated that by 2020 there will be 196m AMD and 80m glaucoma sufferers worldwide.
Bearing all of the above in mind and employing a range of sector multiples, our sum of the parts analysis indicates that Elektron is worth 60p/share – made up of: 40p for Bulgin, 15p Checkit, 2p EET and 3p net cash.