- First half cash loss narrows from £2.7mn to £0.1mn
- Analysts push through material profit upgrades
Sedgefield-based Kromek (KMK:5.8p), a radiation detection technology company, expects to report record revenue and return to cash profitability in the 12 months to 30 April 2024.
The directors’ confidence is not misplaced if this week’s interim results are anything to go by. In the six-month period, Kromek won £8mn of orders including a contract worth $1.4mn (£1.1mn) from a new original equipment manufacturers (OEM) customer, an established player in the medical imaging sector in Asia. Kromek will supply its cadmium zinc telluride (CZT)-based detector modules for use in the company’s next-generation single-photon emission CT (SPECT)-based medical imaging scanners, and has won another four medical imaging orders from existing clients in recent weeks.
In addition, Kromek has entered a collaboration agreement with a global blue-chip technology solutions provider that has over 100,000 customers and commenced work on another collaboration agreement (with Analogic Corporation and a tier-one OEM) to develop CZT-based detectors in their imaging scanners.
CZT detection solutions offer superior sensitivity, higher energy resolution and better imaging performance capabilities that enable the earlier detection of diseases, such as cancer, thereby improving patient outcomes. As the only independent developer and producer of CZT-based detection systems, Kromek’s technology has strategic value to OEMs in the medical imaging space, hence the contract momentum. It also has takeover potential as rival Redlen Technologies was acquired by Canon for $290mn, or a multiple of 20 to 33 times its annual revenue, in September 2021. Kromek's enterprise valuation of £39.5mn ($50mn) is only two times the group revenue and 13 times 2024-25 cash profit estimates.
Kromek’s chemical, biological, radiological and nuclear (CBRN) detection business is securing multi-million dollar orders, too, including one from a major defence corporation. That’s hardly surprising given the heightened geopolitical tensions and threat of warfare. Indeed, ahead of the results, Kromek announced a £1.4mn EU-funded order for its CZT-based dirty-bomb detectors, which protect buildings and critical infrastructure against nuclear threat. The group also has multi-year contracts with both UK and US Government agencies to develop biological threat detection systems.
Analysts at house broker Cavendish have taken note, upgrading their full-year cash profit estimate by a third to £1.2mn on record revenue of £21mn, and raising their 2025 cash profit estimate by 82 per cent to £3.1mn on revenue of £25.5mn. Importantly, 84 per cent of this year’s revenue estimate is either contracted or awarded, with the balance underpinned by a strong bid pipeline of opportunities.
The shares are up 17 per cent since my last article (‘A technology winner in an uncertain world, 1 November 2023), and offer material upside to the fair valuation targets of Equity Development (26p) and Cavendish (28p, upgraded from 25p). Buy.
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