Occasionally on the FTSE, there can be such a wide disconnect between price & value that it is possible to buy £1 stocks for 50p. Sure these festive bargains are rare, but when they occur, we think canny investors should take note, especially in quality names like Kromek, a leader in next generation radiation detectors.
Its world-beating technology is already disrupting 3 major verticals - Medical Imaging (eg BMD & SPECT), Nuclear Detection (D3S) and Security Screening (Airport baggage/bottles) – each worth >$100m pa. Plus over the past 3 years, the firm has won almost £100m worth of orders, built two state-of-art manufacturing facilities in Durham (UK) & Pittsburgh (US), and is selling its proprietary products to numerous blue chip OEMs globally.
With regards to today’s H1’20 results, turnover jumped 44.7% LFL to £5.33m (vs £3.69m LY), driving a 0.8% increase in gross margin to 58.0% (vs FY19), with adjusted EBITDA (pre SBPs) steady at -£611k (vs -£553k LY). Additionally momentum has accelerated since the period close, with H2’19 EBITDA on track to hit £3.3m (vs £2.5m) on sales of £13.2m (£10.m LY)…and thus achieve our FY20 expectations.
Moreover, irrespective of any future economic slowdown, the business is supported by numerous secular trends – not least, improved patient outcomes, homeland security, regulatory requirements, etc. Meaning that at 17.5p, the stock trades at a material discount to other ‘hi-tech disruptive’ peers – and offers 100% potential upside vs our 35p/share valuation.
Equally, if the firm can secure any new largescale D3S deployments (say covering cities, military sites, border regions, etc), then this would also significantly enhance our projections.
