Kromek Group
Ticker: KMK Exchange: AIM

Kromek listed on the AIM market in October, 2013 and is a UK company pioneering digital colour imaging for x-rays using cadmium zinc telluride crystals.

NB All statistical data is as at March, 2016

Latest Reports

Interview with Arnab Basu, CEO Kromek Group

Published: 10th October 2020

Kromek Group plc is one of the world's leaders in radiation detection. Dr Arnab Basu MBE is the founder and CEO: here he reviews last financial year's results, updates on current trading and explains next steps in developing their much needed pathogen detector.

Timing of sections:

1 min 30 secs - review of 2020

6:10 - internal investment

9:50 - cash balances

13.35 - Medical Imaging

17.25 - Nuclear security

20.40 - pathogen detection

25.04 - Video re Biological Threats

27.01 - outlook for Kromek

Through the eye of the Covid storm

Published: 7th October 2020

What doesn’t kill you makes you stronger’. Ditto for radiation detection expert Kromek, which was hit by a ‘perfect storm’ in the Spring, after the pandemic forced hospitals to postpone operations, borders to close and governments to impose national lockdowns.

FY20 was impacted by the coronavirus as site/hospital access was restricted, and further suffered from a one-off £13.1m debtor/AROC impairment. All told, reporting turnover down -9.6% LFL to £13.1m (vs £14.5m LY), gross margins of 47.3% (57.2%) & EBITDA (pre SBPs) at -£0.4m (£2.0m).

Nonetheless, client activity (re RFPs) has recently started to improve, with Medical Imaging coming back first (Europe & US), followed by Nuclear Security (government contracts), and lastly Airport Screening, which is on a slightly longer timeline reflecting continued modest passenger traffic.

In addition, Kromek has cut costs/capex and crucially renegotiated its banking covenants with HSBC. Such that going forward the group believes it has sufficient liquidity – ie £9.4m as at April 2020, including £3.8m of net cash vs £16.4m LY - to fund itself until at least March 2022.

Fundamentals remain intact, as evidenced by [we understand] only a handful contracts being cancelled - leaving the backlog (including commercial call-offs & development agreements) still at near record levels (ED estimate $90m) even after entirely removing the AROC agreement. Based on the assumption demand picks up in H2, the Board is ‘cautiously optimistic’ for the year ahead.

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Revolutionary new pathogen detector

Published: 27th May 2020

Many of the world’s best and most important products (eg Space exploration, nuclear medicine/power & the internet) were originally invented by the military. It’s happened again – but this time to combat airborne pathogens like Ebola, SARS/MERS and all manner of other biological nasties doing the rounds.

In December 2018, Kromek was awarded a $2.0m contract by DARPA (research arm of US Dept. of Defense) to develop a vehicle-mounted bio-threat detector. The idea being that this should be able to rapidly identify (within 1 hour) any dangerous germ that might have been released into the environment, say by terrorist groups, organised criminals &/or rogue states.

18 months on, Kromek has come up trumps. In fact once finished, using state-of-the-art RNA/DNA sequencing, the solution will be able to continuously monitor & collect airborne microbes, which are condensed into single droplets of water. The samples are then genetically coded, with results available in <60 minutes. Not only detailing exactly what families of viruses & bacteria are present, but also which specific strain or mutation.

Long term this could potentially revolutionise how mankind deals with any deadly pathogen, albeit right now Kromek’s smaller civilian version is not yet ready for deployment in an urban setting.

However, DARPA are sufficiently confident of the project’s primary goal being reached that it has awarded a new $5.2m extension to the initial $2m agreement. With the objective of having a fully operational system by June 2021, or earlier.

This new device could materially upgrade our (unpublished) expectations for FY22 & beyond. At 20.5p, the shares trade on a 4.5x EV/sales multiple, which appears exceptional value for risk tolerant investors. Particularly for an IPR-rich business, sporting disruptive technology and addressing high growth multi-billion dollar markets.

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COVID-19 impacts short-term outlook

Published: 1st May 2020

Operating theatres have been converted into ICUs and non-critical procedures understandably postponed to free up resource for COVID-19 patients: so it was no great surprise either to hear today that part of Kromek’s scheduled deliveries for H2’20 have also been pushed to the right - exacerbated by some near-term supply chain issues (eg sub-contractors, site access).

Despite trading well up to February, FY20 revenues are now expected to come in at £14.5m (£18.5m ED Est, £14.5m LY). Delivering a breakeven adjusted EBITDA (£2.0m ED, £0.5m LY), with April closing net cash of £5.0m (£9.2m ED, £7.9m LY) & gross funds of £10.0m.

The Group also now has two substantial coronavirus opportunities. It announced a fortnight ago that it would soon be manufacturing ventilators under license from Metran Co. Ltd. Japan’s leading such OEM and is planning to produce at least 2,000 of these much needed units by end July 2020.

And in December 2018 Kromek was awarded a $2.0m contract by DARPA (research arm of US Dept. of Defense) to develop a ground-breaking vehicle-mounted biological-threat detector. The project is well advanced and we understand the same 1st-of-its-kind science can also accurately & consistently recognise COVID-19.

We think their financial liquidity, augmented by £3m of annualised cost savings should provide sufficient financial ballast for the group to weather this temporary soft patch. As already shown in the fight vs Covid-19, where there is disruption, there is also opportunity

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On the road towards mainstream adoption

Published: 11th December 2019
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.
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3 more D3S contract wins totalling £1.6m

Published: 30th June 2019
Hot on the heels of last Thursday’s upbeat FY19 results, Kromek delivered some more positive news this morning. Announcing that it had signed 3 more ‘dirty bomb detector’ (D3S) contracts worth £1.6m in aggregate across the UK, continental Europe and America.
We think these are significant, since they not only de-risk our FY20 estimates and beyond, but also act as further reference sites for securing additional follow-on work, with both existing and new clients.
CEO Arnab Basu, adding "The D3S platform continues to gain traction in the US and the rest of the world. We are working with a number of high value-customers in a number of countries for deployment and implementation of this technology. These new contracts are great examples of the commercial progress in this area as well as the varied security and military applications for our D3S family of products."
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Rare ‘hi-growth disrupter’ at modest price

Published: 26th June 2019

Finding truly world class disruptive companies trading at attractive discounts to their intrinsic worth is the nirvana of most GARP investors. Particularly where these stocks address multi $bn markets, possess patented technology, enjoy wide economic moats and are expanding organically at double digit rates.

Enter radiation detection specialist Kromek, which today reported FY19 turnover up 22.6% LFL to £14.5m (vs £11.8m LY), alongside a 4-fold increase in EBITDA (pre SBPs) to £2.0m (£0.5m). Better still momentum accelerated throughout the period, with H2’19 EBITDA coming in at £2.5m (margin 23.3%) on sales of £10.8m (£7.0m LY).

Sure the blow-out H2 numbers contributed towards a temporary build-up of ‘trade debtors & other receivables’ at yearend – mostly attributable to ‘Amounts Recoverable On Contracts’. Albeit the Board anticipate these AROC products will be shipped, invoiced and converted into cash over the next 6 to 18 months. Producing a rich source of future capital for strategic expansion opportunities, on top of the firm’s £15.2m of net cash as at April’19.

In terms of the numbers, we make no change to our forecasts, and reiterate the 35p/share valuation, underpinned by almost 80% FY20 revenue cover. We believe the stock trades at an unjustified discount to other ‘hi-tech disruptive’ peers across most metrics. Plus, if the company can secure any new major D3S deployments (say covering cities, military sites, border regions, etc), then this would materially enhance our numbers.

CEO Arnab Basu, adding "This was a milestone year as we delivered on all of our objectives, including our key target of growing adjusted EBITDA. Looking ahead, we entered the 2019/20 fiscal year in a stronger position than ever before. The momentum of new contract wins has continued, providing us with greater visibility over revenue. As a result, we are confident of delivering growth for full year 2019/20, in line with market expectations."

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Trading in line with expectations

Published: 9th May 2019
Despite macro uncertainties (eg Brexit & US/Chinese trade tensions), it is nice to hear positive news about a great British technology success story

On Tuesday (7th) Kromek – an IP/science rich firm which develops cutting edge gamma and x-ray detectors for the multi-$bn medical imaging, homeland security and nuclear screening industries -  said that it “expects to report revenue growth for the full year 2018/19 and EBITDA profit in-line with market expectations.” Implying a strong H2’19, with the Board continuing “to look to the future with confidence”.

Indeed, only 9 days ago the company secured a $2.7m expansion order - to be recognised over the next 24 months - under an existing 5 year security screening contract (now worth a minimum of $5.8m). In turn, further building the orderbook (ED est. $90m+) and improving visibility (ED est. >70% for FY20).

Although our forecasts and 35p/share valuation remain unchanged, we believe there is scope for upgrades in due course, particularly given the group’s modest FY20 EV/sales multiple of 3.6x vs peers at 5.7x.

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£21m to fund unprecedented demand

Published: 25th February 2019
There are a multitude of reasons why companies tap investors for money. However, to us the most productive use of fresh capital is to enable businesses to satisfy unprecedented demand in their core areas of expertise. Exactly the situation that Kromek finds itself. 

Here, the D3S is already the de facto standard for ‘dirty bomb’ detection, whilst in medical imaging, a secular upgrade cycle (re CZT replacing scintillated materials) has already kicked off, augmented by the need for OEMs to respond to GE’s first mover advantage. 

Hence at today’s General Meeting, Kromek concluded its (previously announced) £20m placing & £1m open offer - issuing 84.0m new shares at 25p, and enlarging the equity base by 24.7% to 344.6m.

The funds will be invested in tried & tested technology, underpinned by multi-year contracts and an approx. $100m orderbook. Most of these deals were secured thanks to its proprietary technology, strong customer-centric ethos and long term commitment. A marvelous position to be in. The only slight headache ongoing forward, being able to simply make enough of these innovative products to meet requirements. 

That said, largely because of the higher sharecount, our valuation declines from 50p to 35p/share - albeit still >25% above today’s price. At 27.5p the stock trades on a CY EV/sales multiple of 5.0x, which is in broadly line with peers, yet does not reflect KMK’s faster growth.
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Big game hunting

Published: 28th January 2019
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride (CZT) crystals. Key markets include medical imaging, homeland/security screening and nuclear detection.

The healthcare industry has reached a seminal point. Faced with ageing populations, soaring demand and intense political pressure to improve patient outcomes, governments have realised that the only way to cope is to embrace ‘revolutionary’ new technologies. Not just those which deliver incremental improvements, but real ‘step changes’ that generate far superior results from much less resource.

To us, this strategic shift is a ‘no-brainer’, and next generation medical imaging equipment powered by CZT fits the bill. Accelerating the diagnosis & treatment of some of the world’s most common, yet serious conditions - such as cancer, heart disease, dementia, diabetes & osteoporosis. And this morning Kromek announced that it had been awarded a ‘ground-breaking’ $58.1m (minimum) 7 years contract to supply its patented CZT detectors to a leading medical imaging device manufacturer (and existing client) with 1st revenues expected to commence in FY20.

This watershed agreement is significant on numerous counts. Firstly, along with its unique D3S ‘dirty bomb detector’, KMK now has a 2nd monster ‘home-run’ to bolster its near-term pipeline. Next, given this OEM has decided to invest heavily CZT, then today’s news removes any lingering doubt (if there was any) concerning the magnitude of the opportunity. In fact, this secular upgrade cycle is likely to drive KMK’s growth over not just months & years, but probably decades too.

Better still, the RNS could potentially set the stage for a mini ‘gold rush’ across the industry. In one fell swoop, shifting the technology goal-posts and positioning KMK as the front-runner to sell its patented CZT detectors to other medical imaging OEMs. Organisations with whom we suspect discussions are already underway. 

Finally from a risk perspective, the announcement should also decrease the notional ‘discount rate’ (ie equity premium) built into investor returns. Not only because we estimate Kromek’s backlog presently hovers at around $100m, but also because future visibility has materially improved. 

So, despite (conservatively) not upgrading our projections for this year & next, we have lifted the valuation to 50p/share, reflecting the $58.1m (minimum) contract, higher anticipated growth rates and lower risk profile.

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Could save 100ks of lives and £bns globally

Published: 14th January 2019

Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride (CZT) crystals. Key markets include medical imaging, homeland/security screening and nuclear detection. Headquartered in Sedgefield (UK), Kromek has c.109 employees, of which approx. 88 are in R&D, with a 3 further sites in California, Pittsburgh and Germany. The firm has filed/registered >270 patents.

Amid all the BREXIT hullabaloo, it is easy to forget that the government only last week committed another £20.5bn to the NHS – aiming to save a further 500,000 lives by 2029. Central to the plan is increasing the availability of next generation imaging equipment in hospitals (eg X-ray, BDM, SPECT, CT & MRI) in order to accelerate the diagnosis & treatment of serious illnesses (eg cancer, heart disease, dementia & osteoporosis).

It seems the only affordable solution is to combine cutting edge graphics (re Kromek’s CZT detectors) with Artificial Intelligence – ie to far more accurately and quickly identify such conditions at lower unit costs. The good news is that we are almost there, with KMK’s Healthcare division predicted to jump c.50% LFL in FY19, delivering approx. 60% (or £9m) of our targeted revenues (£15m). Here, the business has already won a slew of contracts for Gamma probes, BDM & SPECT - supported by a whole body of positive clinical data.

Some investors might be mildly queasy by the ‘headline’ 23% fall in H1 turnover, coming in at £3.7m vs £4.8m LY – and leaving £11.3m for H2. We recognise this concern, together with the associated 25:75 weighting. On the other hand, KMK is a small rapidly expanding business commercialising disruptive technology - so this type of bump along the road should not be too surprising. Big picture, we are far more focused on the long-term opportunity, especially with regards to the adoption of CZT within numerous different verticals. Not solely medical, but also homeland/airport security (eg $7.8m baggage screening contract won in Nov’18) and nuclear detection ($2m biological device detector – Dec’18).

Bearing all this in mind, and in light of the 86% and 72% of revenue cover for this year and next, we have held our projections intact, and reiterate the 40p/share valuation. Nevertheless we do accept the greater execution risk, reflecting the significant step up in H2 production and volumes. Conversely, no large-scale D3S US city roll-out has been factored into our numbers either, until after FY20. Meaning there could be substantial upside if any such deals were to be secured, say over the next 12-24 months. Finally in terms of valuation – at 27p, the stock trades on a CY EV/turnover multiple of 4.6x  - which is in line with peers, but does not reflect the much faster growth trajectory.


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New biological threat detector

Published: 10th December 2018
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

In the same fashion as cities require an early warning system to combat the threat from “dirty [nuclear] bombs” - perhaps detonated by terrorist groups, rogue nations and/or organised crime gangs - they also need protection against biological attack.

What’s more, there are very few (if any) companies that have the expertise, management capability and experience of delivering such technologically advanced projects. Kromek is one, with news today that it had been selected by DARPA, the US military’s research arm, to come up with a new proof-of-concept device to identify biological-threats. 

The initial contract is worth $2m over a 12 months period (starting immediately) and builds on the firm’s work with its cutting-edge D3S portable detector. In fact, assuming Phase 1 proves successful, then the agreement could be extended to cover the full development of a next-generation vehicle-mounted system, capable of identifying the pathogens used in any biological attack within 5 hours vs 36-48 hours currently. Hence, not only enabling faster response times by the emergency services, but also minimising the harm caused to the local population and the surrounding area. 

Although at this stage there is no change to our forecasts, we reiterate the 40p/share valuation with the deal further de-risking expectations for FY19 and beyond. 

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New $7.8m CZT baggage screening contract

Published: 19th November 2018
Kromek is pioneering digital colour imaging for x- and gamma rays and key markets include medical imaging, homeland security and nuclear detection.

Its cutting edge CZT (cadmium zinc telluride) detectors that have the potential to transform the medical imaging, home security and nuclear detection industries. Today the firm announced that it had won a ground-breaking contract (commencing immediately) worth a minimum of $7.8 million over 5 years, for the provision of next generation baggage screening systems with an existing X-ray OEM client. 

Although at this stage there is no change to forecasts, we reiterate our 40p valuation on the shares, and note that the deal further enhances visibility, along with de-risking expectations for FY19 & beyond. 

What’s more, it could have a hugely beneficial effect across the wider baggage screening sector. You see, by deploying CZT we think this will significantly lift the bar in terms of product performance. Meaning that in response, rivals might also need to upgrade quickly from legacy solutions - in turn, improving border security and generating a virtuous circle of demand for KMK.

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Hugely significant $1.8m contract win

Published: 26th September 2018
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

Encouragingly, this morning the US Defense Threat Reduction Agency (DTRA: part of the Dept of Defense) have awarded a 2 year $1.8m contract to Kromek to develop a new military-grade ‘Radionuclide Identification Device’. Or, in other words, the firm has been tasked with creating a much ‘tougher & ruggedized’ version of its state-of-the-art D3S – so that it can operate under harsher terrains and combat conditions. 

Although this certainly won’t be easy considering the levels of sophisticated gadgetry fitted inside each of these handheld detectors. Albeit we believe it is also comfortably within the scope of Kromek’s existing R&D and production capabilities.

It’s impossible to be too specific on the potential scale of this work at this stage. However, ultimately we reckon the magnitude of any follow-on commercial orders could be in the 10s of thousands – and importantly, too, at a higher price point than the civilian version of D3S. Hence our enthusiasm.

We make no change to our forecasts or 40p/share valuation, but recognise the potential upside and benefits to the group’s backlog and revenue visibility. This could have far wider connotations since, given the significance of NATO (re procurement), then eventually the D3S could even become the de facto standard for governments and armed forces worldwide to protect themselves against dirty bombs.

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Increasingly more confident

Published: 20th August 2018
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

Hot on the heels of winning up to $3.3m of home security contracts in late July with the US government, Kromek today said that it had secured two more significant orders. Both are within healthcare and together worth >$1m.

The first for $700k with a new OEM to supply CZT detectors for nuclear medicine applications to be shipped over the next 18 months. Here the devices will generate sharper images in quicker timeframes and at lower radiation levels – thus enabling much improved patient outcomes. The second being a £340k repeat order from an existing BMD customer (Bone Mineral Densitometry) which will be delivered in FY19. 

We are encouraged by these developments – ie two major announcements in <1 month - and suspect it might be a reflection of management’s increasing confidence in meeting our estimates for this year and next.

Better still, today’s news also reinforces the ongoing shift from CZT development work to selling commercial products, along with offering future upsell opportunities, bolstering the orderbook and enhancing revenue visibility (ED estimate for FY19 >2/3rds). 

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Momentum building

Published: 23rd July 2018
We think that what really differentiates good from truly great companies is the presence of ‘world beating and highly disruptive’ technology that not only addresses large untapped markets, but also is difficult to copy. We think Kromek has this in spades.

Indeed, this morning the company announced that it had secured two more top flight contracts with the US Government. The first is worth $1.5m (over 2 years) with the Department of Homeland Security to create a new CZT detector to enhance passenger baggage screening equipment. Here, Kromek is leveraging its expertise in SPECT (ie healthcare) to design a much more accurate and faster x-ray platform for airport border control purposes, that almost eliminates the incidence of ‘false alarms’.

And secondly an order ($1.05m over 3 years with a possible 2 year $0.7m extension) from the Defense Threat Reduction Agency (DTRA) to develop a new range of sophisticated handheld nuclear radiation detectors. Both agreements will further broaden Kromek’s product portfolio, are cashflow positive, and de-risk our FY19 revenue target (£15.0m) to the tune of circa £600k.

Elsewhere, last week came news that the D3S had been successfully deployed by Belgian Federal Police at the recent NATO Summit in Brussels – ie to protect President Donald Trump and other Heads of State from potential radiological attack (eg hidden in cargo, vehicles, buildings and other equipment).

In terms of the numbers, we maintain our forecasts and 40p/share valuation, but see scope for significant upgrades over the next couple of years – especially if the company can capture the substantial opportunities available within SPECT and D3S. 
As International Trade Secretary, Dr Liam Fox MP, says: “Kromek is recognised as one of the country’s most innovative businesses, and its products are making a tangible difference to people’s lives across the world.”

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FY19 set to be another 'break-through' year

Published: 2nd July 2018
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

FY18 was pivotal in many ways. Not least, because it was the first time ever EBITDA turned positive (£482k vs -£1,462k) - reflecting record turnover of £11,845k, up 32.1% LFL (LY £8,968k; +37% constant currency) and favourable operational gearing (gross margin 56.4% vs 57.1%). However this is just the start.

In our view, strong double digit growth should continue for the foreseeable future, with FY19 setting up to be another landmark year. This time achieving cashflow neutrality, together with winning a number of new orders with blue chip OEMs and governments across the globe. The greatest demand expected to come from SPECT (single photon emission computed tomography), a $100m addressable market, and nuclear detection (worth >$1bn) on the back of KMK’s best-in-class ‘dirty bomb’ detector, the D3S.

Indeed Kromek is probably the only independent, end-to-end CZT manufacturer with the required design, engineering and technological skills to produce sufficient commercial quantities of the material in the desired timeframes and at the targeted price levels. A key reason too, why today the business has a coveted roster of 11 healthcare clients - across SPECT, bone mineral densitometry (BMD to treat osteoporosis) and gamma probes (used for radio-guided surgery).

Ok, but what was the cashburn? Net cash closed April’18 at a comfortable £7.7m (vs £17.3m), representing an outflow of -£9.6m in the period (split -£4.0m H1 vs -£5.6m H2). The decline was due to working capital (-£6.0m vs -£0.95m LY), -£3.5m of capitalised R&D, capex/IPR (-£0.9m) and forex (-£0.5m), partly offset by £0.9m of tax rebates and £0.5m EBITDA. 

Looking ahead, based on our estimated 60%-70% revenue cover, we have bumped up our FY19 EBITDA forecast from £1.40m to £1.66m on sales of £15.0m – in turn lifting the valuation from 37p to 40p/share.

Conservatively, no large-scale D3S US city roll-out has been factored into our numbers until after FY20. Meaning there could be substantial upside, if any such deals are secured (as we suspect they might) in the near term. Plus for benchmarking purposes, at 24p, the stock trades on a current year EV/sales multiple of 3.6x  - which is noticeably lower than the average, despite KMK’s faster growth trajectory.

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EBITDA breakeven achieved on record sales

Published: 1st May 2018
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

Recently the Turkish police, only after acting on a tip-off, managed to thwart a potentially heinous plan to sell 1.4kg of radioactive material (worth £49m) on the black market. Which is exactly why the US Department of Defense (DoD) has committed to develop an early warning system for the detection of ‘dirty bombs’. 

Here Kromek has already shipped >10,000 D3Ss to the DoD - and in March won another $1.6m contract to further enhance its state-of-the-art technology. The hope being ultimately to roll-out the device across 20+ US cities (each worth $10m+), along with securing similar orders in other geographies (eg Europe).

Encouragingly too, the company is hitting its numbers. Saying this morning that trading for the 12 months ended April 2018, had been “in line with expectations” - achieving “EBITDA breakeven” (Act -£311k H1 vs ED £300k H2) on top of positive revenue growth (ED £12.5m; Act £4.8m H1 vs ED £7.7m H2). 

Kromek also continues to “gain traction” across “all its business segments” – and expects further growth in FY19. As such, we make no change either to our numbers or 37p/share valuation. Albeit we note that at 22p, the stock trades on a modest 3.6x FY19 EV/sales multiple vs 5.2x peers, despite its superior growth trajectory.

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On track for a record full year

Published: 19th December 2017
Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

What with North Korean missiles whistling over Japan, supreme leader Kim Jong Un threatening nuclear war against America and numerous other terrorist attacks, the world is undoubtedly a dangerous place. Demonstrated again just a fortnight ago, after a ‘lone wolf’ ISIS extremist, managed to explode a home-made ‘pipe-bomb’ in a busy New York underpass near Times Square. 

In response, the US Department of Defense (DoD) is developing an advanced early warning system, funded within a 10 year $8.2bn program. Here, Kromek‘s D3S is at the nerve-centre of the network, acting as the ‘eyes & ears’ for the emergency services in order to sniff out ‘dirty bombs’. Ok, but when will the technology be rolled-out across the US? Nobody knows for sure, yet  we suspect this process will commence sometime over the next 12 months and could potentially offer the D3S a $1bn+ opportunity globally.

The firm’s patented cadmium zinc telluride (CZT) detectors are also being enthusiastically embraced within the healthcare community. The technology produces far sharper 3D colour pictures than existing diagnostic images, at lower radiation levels and in quicker time. Key benefits for doctors who need to safely diagnose and treat life-threatening diseases like cancer, Alzheimer’s, Parkinson’s and osteoporosis. 

Although not disclosed in today’s interim results, we estimate that on top of repeat business, Kromek has now received long term contracts worth in the region of $45m across all three verticals. Thus providing excellent prospects, supported by a healthy orderbook and strong underlying demand. With a modest H1’18 EBITDA loss of -£0.3m on revenues up 26% to £4.8m, the company remains bang on track to hit our FY18 sales target of £12.5m. In the process, delivering record H2 turnover of £7.7m and becoming EBITDA positive for the 1st time ever. 

Since there is 88% sales cover, with only an extra £1.5m required by the end of April 2018 to hit our £12.5m figure, then FY18 looks almost in the bag. So we make no change to our FY18-19 projections, mirroring our confidence in Kromek’s growth trajectory. Likewise, we maintain our 37p per share valuation, but reiterate that this is prudent, assuming the organisation can successfully commercialise its leading position in several fast-growing multi-$billion markets.

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The future's bright, the future is CZT

Published: 28th June 2017
Graphene may grab all the headlines, but there is another ‘wonder material’ being championed by Kromek, perhaps Britain’s most unassuming tech-rich University spinout. The miracle substance is ‘Cadmium Zinc Telluride’, or CZT for short, which is gaining real traction in the multi-$billion healthcare (eg CT), homeland security and nuclear detection markets.

What makes it so special is its ability to generate much sharper images than existing X-rays and, importantly, at far lower radiation doses and in double quick time. So superior is the step-change in picture quality that we think CZT will leap from ‘cottage industry’ to ultimately dominate its target therapeutic areas. 

Better still, this now seems to be happening with Kromek’s FY17 results today showing product revenues climbing 23% to £6.7m, representing 74% (65% LY) of the total (£9.0m). FY17 turnover and adjusted EBITDA (pre share-based payments) came in slightly up on our estimates at £9.0m (vs ED £8.9m and £8.3m LY) and -£1.5m (-£1.85m ED and -£2.4m LY) respectively. Albeit net cash was lower at £17.3m (vs ED £20.0m), reflecting £3.1m of up-front development expenses (shown in WIP) incurred on the potentially huge Chinese agreement that will be recovered as product shipments are made. 

Looking ahead, we make no change to our FY18 projections, but for the first time introduce FY19 estimates, mirroring the improved visibility and management’s rising confidence. Note that for FY19 no large-scale D3S US city roll-out has been factored into the £16m turnover figure.

Accordingly, we have nudged up our valuation from 34p to 37p per share, but once again reiterate that this is conservative, assuming Kromek can successfully commercialise its leading position in several fast-growing, multi-$billion markets. 
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£21m equity raise to accelerate growth

Published: 22nd February 2017

Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, homeland security and nuclear detection.

When an army of ‘super smart’ fund managers snap-up a big holding in a rapidly expanding small-cap that owns ‘disruptive’ technology addressing multi-$billion markets, then it is usually worth taking note.This is exactly what has happened at Kromek, successfully completing its oversubscribed £20m placing and £1m open offer at 20p/share - supported by esteemed investors such as Gervais Williams at Miton (largest shareholder at 19.0%) and Katie Potts (Herald 5.35%), as well as others like Schroders (5.0%) and Killik (4.1%).

Kromek now combines exciting prospects with a ‘fortress-like’ balance sheet. In fact, the latter was the main reason behind the net £19.9m raise. Despite winning orders worth $35.5m over past 18 months (Book-to-Bill of 2.3x), a few customers were still nervous about awarding strategically important deals to the firm, because of its ‘perceived’ lack of financial ballast to produce commercial quantities of product, provide ongoing aftermarket support and backstop (if necessary) any associated T&Cs.

The capital injection might act as a catalyst for the company to land a number of significant orders over the next few months/quarters, indeed a 5 year deal in Security Screening has been announced today. The majority of future wins are expected to come from within its core verticals.
The Board encouragingly added on 25th January that trading was on track to meet FY17 consensus (adjusted PBT of -£3.7m on turnover of £8.8m-£8.9m), with the objective of achieving EBITDA breakeven in FY18 from sales of £12.5m. Given the forward visibility and £20m+ in the bank, we think this is achievable – underpinning our updated 34p/share DCF valuation, lower than before the placing simply due to the higher share count (153m vs 259m).
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View the Results Webinar

Published: 9th December 2016
You can now hear Arnab Basu, CEO, and Derek Bulmer, Chief Financial Officer, present the interim results for the 6 months to 31 October 2016 on behalf of Kromek Group plc.

To view simply click on the video below.

Buoyant demand with over $30m of orders won

Published: 19th July 2016

Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals.

This morning the firm reported that >$30m of new orders were secured for the 12 months ending April 2016, equivalent to an approx. book to bill ratio of 2.5x. This growth was helped by multiple landmark deals with new and existing blue chip customers, particularly in Nuclear Detection and Medical Imaging - thus providing excellent revenue cover for this year and next.

Indeed we reckon that the 12,000 unit DARPA D3S contract alone could generate $6m of sales in FY17, equating to around 50% of our £8.9m target. Better still, there are several other multi-$m orders in medical imaging (Re SPECT and BDM) set for fulfilment this year, on top of normal repeat business, development work for Canberra Industries and likely rising demand for bottle-scanners.

With regards to Kromek's competitive moat, 44 new patents were granted and another 16 filed in FY16, thus taking the total to over 290. In fact, we believe Kromek's proprietary technology is becoming more and more sought after, as evidenced by the quality of its new business wins.

In terms of FY16 figures, turnover at £8.3m was in line with our estimates of £8.4m  - driven largely by product sales up 41% YoY, representing 65% of the total. Going forward, we have prudently held our FY17 turnover and EBITDA targets at £8.9m and -£1.85m respectively, with closing net funds of £2.1m.

Based on the burgeoning backlog, our price target has been lifted to 45p/share (from 42p), offering considerable upside from current levels upon good execution.   

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$27.6m+ of orders won in 2016

Published: 28th April 2016

Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include: medical imaging, homeland security and nuclear detection. Recent wins suggest it is punching way above its weight: in February the company announced a landmark $6m contract to supply the US Dept of Defence with 12,000 of its revolutionary 'on body' D3S portable radiation detectors to help combat 'dirty bombs'. 

This morning comes news that it had secured another terrific endorsement of its technology, this time a contract from a leading Bone Mineral Densitometry OEM worth $12.6m over 5 years, beginning in H1'17. Here, Kromek's cutting edge CZT detectors will be incorporated into the existing customer's diagnostics systems to accurately assess the strength and health of bones in patients suffering from osteoporosis. 

The duration of the deal will not only bring in regular revenues, but should also help optimise the supply chain given the relatively linear production loading. Gross margins too are anticipated to be in line with our profit estimates. 

Looking ahead, we believe FY17 forecasts are now well underpinned - impressively 12 months' ahead of time - after receiving over $27.6m of orders in FY16, equivalent to a book:bill ratio of 230%, based on turnover of £8.4m. Although no changes are being made yet to our increasingly conservative projections or 42p/share Price Target, we hope to revisit numbers at the prelims in mid-late June.

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Protecting the US public against the 'dirty bombs'

Published: 21st February 2016

Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include: medical imaging, homeland security and nuclear detection.

'Dirty bombs'are a terrifying prospect that, if detonated, would wreak havoc in large cities like New York. Not only causing death and destruction at the blast zone, but also widespread contamination of public areas potentially to be cordoned off for weeks or months. 

This is why the US Department and Defense (DoD), via its DARPA division (Defense Advanced Research Projects Agency), has just placed two landmark orders with Kromek worth $6.75m in total, to help safeguard the nation from such bombs. 

DARPA's long term vision is to establish a comprehensive security blanket across large swathes of the country - meaning that this contract could ultimately be expanded to cover literally 100ks (if not millions) of government employees under one huge integrated network. Better still, the $500/unit price point is a global first, and we understand active discussions are already in motion with at least 2-3 other major customers to deploy this patented technology.

When this is added to the $7m of deals secured in H1, and January's $1m bone mineral densitometry contract, we estimate that total FY16 order intake will be >$15m - representing a book:bill ratio of at least 125%, based on turnover of £8.4m. Demand also shows that the adoption of truly disruptive technologies is likely to occur even in the face of macro-economic headwinds.

Our estimates suggest that Kromek should become EBITDA and cashflow positive on annualised revenues of circa £11.5m and £14.5m. No changes are made to our 42p/share price target.

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Exponential growth now in sight

Published: 7th December 2016

Kromek is pioneering digital colour imaging for x- and gamma rays, using cadmium zinc telluride crystals. Key markets include medical imaging, nuclear detection and security screening.

The potential for further major contracts remains promising. They would take time to flow through to the P&L,  yet even so the immediate signs are promising. At the interims this morning LFL sales impressively climbed 19% to £3.8m, reflecting triple digit gains in Asia (eg medical products including BMD) and the UK, allied to a solid performance again from the US.

Better still, Kromek is on track to achieve our FY17 sales target of £8.9m supported by in excess of “85% visibility” (RNS), and higher H2 gross margins (ie Est 58% vs 53% in H1) as the business scales. H1’17 adjusted EBITDA of -£636k was in line with our expectations, or -£1,836k if one backs out a £1.2m forex benefit from the balance sheet translation of $ denominated assets and working capital (re £ weakness). 

Despite absorbing £1.7m of capitalised R&D, H1 cash-burn was a modest £1.55m (vs -£3.9m H1’16 and -£2.6m H2’16), thanks to positive working capital and the receipt of £0.9m in R&D tax credits. Net funds closed October at a £2.3m, which should be sufficient until the group becomes self-funding in FY19, assuming things go to plan.

Kromek has already landed prestigious BMD and SPECT agreements with several blue-chip OEMs, which together are forecast to more than double revenues from circa £2.7m in FY17 to £6.5m next year. However, to us the biggest near-term opportunity relates to the further roll-out of its portable D3S ‘dirty bomb’ detectors, 10,000 such devices having already been shipped to the US Dept of Defense (DoD).

Looking ahead, visibility is building too for FY18 where we estimate there is now >50% cover of our £12.5m sales estimate - in turn driving adjusted EBITDA into the black at £0.3m. We make no change to our FY17 projections or 45p/share DCF valuation.

NB Management will present at a webinar tomorrow, Thurs 8th, at 11.45am :   Register here

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