Chairman: A new non-executive chairman has recently been appointed, Andrew Kitchingham. He brings corporate finance and quoted-company expertise. The chairman stated with the interims that the company “will miss current market expectations by a significant margin.” We temporarily suspend estimates.
Cash: Cash stood at £5.0m end June 2024 but this figure is now “significantly reduced.” Cash is tied up in working capital and the company states it is in ongoing discussions with key customers and suppliers “to optimise payment terms.” We understand an HMRC credit is due shortly.
Growth: The current growth rate appears still to be positive but has slowed. The company states the remaining furnace, which is a capacity constraint on top of the other issues, is to be installed mid 2025, which is behind the schedule for 4Q24. Capital expenditure continues apace, debt funded.
Risks: The acceleration in volume production needed to continue at higher rates than were achieved, in order to reach cash flow breakeven. The May open offer provided a breathing space for the equity financing of the company. Customers are stated as still being supportive.
Investment case: The market opportunity and competitive moat are significant and illustrative EBIT returns on capital equipment are 20-30% pa, excluding work in progress cash. SCE is one of two suppliers in a very important global market. However, the series of different manufacturing challenges bring into question the continued prospects, so we are suspending financial estimates.
