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.
