Exuberance, reality; enlightenment now to follow

Haydale is competitively well-positioned within the nanomaterial industry, with a unique patented functionalisation process – currently focused on, but not limited to, graphene. Commercial developments for graphene and silicon carbide are progressing well and, while timings of commensurate news releases may be lagging, the long-term risk/reward balance remains favourable. The shares are attractively valued compared with their peer group, on P/NAV and EV/sales, and also on a DCF basis.

• Competitive position: Haydale is competitively well-positioned – a top-quartile status – within the nanomaterial industry, with a unique process for graphene functionalisation, addressing a diverse range of industries and geographies.
• Strategy: The group’s key strategic objective is now to further accelerate the transition of the business into a sales and marketing organisation from an R&Dfocused operation. The group plans to further commercialise its functionalisation process by providing solutions to both raw material producers and industrial corporations, initially in non-regulated markets.
• Market potential for graphene and functionalised derivatives: The market potential, while difficult to ascertain, given the barriers and – often – slowness of customer adoption, is still believed to be significant. Currently at around $75m, the global market for raw graphene materials is expected to grow at over 35% p.a., covering a diversity of industries and geographies, attaining $250m by 2025. Commercial traction is evident, but has been limited, owing to the timeconsuming nature of customer adoption.
• Management changes: Recent senior management changes and expansion, including the appointment of Keith Broadbent as COO,should be deemed positive, and will allow experienced and key personnel to concentrate fully on the principal activities of business development and monetisation of commercial deals.
• Investment summary: Commercial traction is good, and the group has entered FY19 with a healthy order book, which was increased post year-end, and cautious optimism. We believe our forecasts are conservative for FY19, with strong growth expected in FY20. The shares have performed poorly recently, largely reflecting the difficulties in revealing the positive commercial news. The risk/reward balance remains favourable on a long-term basis, with net cash at £4.2m, and with additional debt facilities of £1.4m. The shares are attractively valued vs. their peer group, on P/NAV and EV/sales, and also on a DCF basis (see page 24).