- Management confirms full-year guidance
- New £5.5mn secured-term loan
- CZT detectors integrated into next generation medical scanners
Sedgefield-based Kromek (KMK:3.2p), a radiation detection technology company, announced an important refinancing of its debt facilities a few weeks ago, even if the share price fails to acknowledge it.
A new secured term loan of £5.5mn is being provided by the investment vehicle controlled by Dr Graeme Speirs who holds a 9.6 per cent shareholding in the company. It carries an interest rate of 9.5 per cent, 0.4 percentage points more than the previous £5mn facility with HSBC, and is due for repayment in March 2025. Kromek has the option of paying the £118,750 quarterly interest charge by issuing new shares.
Although the refinancing has reduced financial risk and should enable investors to focus on the company’s improving operational performance, Kromek’s shares are trading a third below the placing price when the group raised £7.4mn in May 2023. Moreover, analysts at both Equity Development and house broker Cavendish forecast a move into cash profitability in the financial year to 30 April 2024, pencilling in cash profit of £0.9mn on a fifth higher revenue of £21mn. Forecast closing net debt of £1.7mn (ED) to £2.5mn (Cavendish) is comfortably within Kromek’s total borrowing facilities of £8.8mn.
It means that the company has the requisite funding to deliver its strong and growing order book. Kromek received a boost last month when one of its key customers, Spectrum Dynamics Medical, introduced the company’s medical imaging scanners. As the only commercial independent global supplier of the technology, Kromek is well-placed to capitalise on the widespread adoption of next-generation nuclear medical imaging, which offers superior performance.
Geopolitical uncertainty to buoy demand for dirty bomb detectors
Geopolitical instabilities are also playing into Kromek’s hands, underpinning demand for its CZT-based dirty bomb’ detectors which protect buildings and critical infrastructure against nuclear threat. Recent events in Israel and Palestine only highlight the need for sovereign states to protect their borders and citizens. Bearing this in mind, Kromek’s distribution agreement with Smiths Detection covers territories in both the Middle East and Asia. The company’s technology is also being used in the development of government-funded biological threat detection systems in both the US and the UK.
Kromek has secured its financing, and analysts at Equity Development predict a trebling of cash profit to £2.6mn on a fifth higher revenue of £25.1mn in the 2024-25 financial year. Therefore an enterprise valuation of eight times forward cash profit is a modest rating. I am not the only one thinking this way as both Equity Development and Cavendish have fair value eight times higher than the current share price. The derating since the annual results (‘Kromek's 44% revenue boost underlines why it's a buy’, 27 July 2023) is overdone. Buy.
