Part 3 of our top-to-bottom Buy List review
27th October 2022 |
This week concludes the final round of our Frontier Tech Investor Buy List review.
Hopefully, reviewing each position has provided you with a reminder about the solid long-term potential of each company.
We’re fully aware that more pain may be on the way. However, as stated, we are not going to deviate from our strategy of finding exciting and admittedly risky tech-focused companies that form part of the world’s megatrends.
If you have any questions, please feel free to email us at [email protected] and we’d be delighted to answer them.
Pod Point Group Holdings (LSE: PODP)
Pod Point is a UK provider of electric vehicle (EV) charging infrastructure.
The company has a versatile range of charging options, including home, commercial and public charge points.
Pod Point continues to deploy its EV chargers at a healthy clip.
During H1 2022, the company installed 45,000 charge points, up from 27,000 in H1 2021. It also won a key commercial contract with BMW, making it one of 20 key OEM customers.
Pod Point’s financial figures are also solid. For H1 2022, revenues came in at £41.6 million, a 57% increase on H1 2021. Gross profits also increased 48% across the two periods.
Once again, we believe Pod Point’s steep share-price decline this year is an overreaction by the market.
With the UK facing a possible EV charging shortfall of 250,000 by 2032, we believe Pod Point’s charging technology will be invaluable to the country’s EV transition.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Rolls-Royce Holdings (LSE: RR)
Rolls-Royce is a provider of aircraft propulsion and energy systems.
The company is fully aligned with the UK’s net zero strategy for 2050.
We are most excited by Rolls-Royce’s involvement in the UK’s nuclear energy transition.
The company has so far received £210 million in government funding to develop small modular reactors (SMRs). SMRs are smaller, cheaper and more versatile than traditional nuclear power plants.
The company is expecting to receive UK regulatory approval for the SMRs by mid-2024, with a view to bringing them online in 2029.
Rolls-Royce plans to develop five SMRs in the UK by this time, each costing £1.8 billion to build and capable of powering a million homes.
In September 2022, Rolls-Royce also signed a Memorandum of Understanding with Czech engineering firm Skoda JS to deploy SMR technology across Europe.
For H1 2022, Rolls-Royce recorded revenues of £5.6 billion, up 8% on H1 2021.
However, it continues to grapple with rising losses. These totalled £1.6 billion in H1 2022, roughly four times the losses recorded in the year-earlier period.
Rolls-Royce puts the losses down to supply chain difficulties and post-Covid “indigestion”.
We acknowledge the losses, but accept that the company’s recovery will require patience. It faced catastrophic losses during the pandemic, which grew to £4 billion at one stage.
Now that it’s through the worst, we believe Rolls-Royce’s involvement across the green energy transition will soon make it attractive to investors again.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Surface Transforms (LSE: SCE)
Surface Transforms is a producer of carbon ceramic brake discs for high-performance sports cars.
Its brake discs provide a strong competitive advantage for its customers. The brakes can provide weight savings of up to 70% compared to industry standard iron brakes.
Its customers include Lamborghini and McLaren.
The company has had a hugely successful half-year, and it’s showing huge potential for growth.
This year, after installing new furnaces and machinery, the company has expanded production capacity at its Knowsley facility. Its sales capacity stands at £20 million per annum, but could rise to £50 million per annum by next year.
The company’s financial performance is also impressive.
For H1 2022, Surface Transforms recorded revenues of £2.9 million. This is a healthy 137% rise on the figure for H1 2021.
Losses only increased slightly across the two periods, rising from £2.2 million to £2.5 million. Considering that the company has had to fund the capacity increase at its facility, this is hugely impressive.
In part, revenues have increased thanks to new commercial contracts with major automotive manufacturers, including with Aston Martin and Koenigsegg Automotive.
In fact, Surface Transforms has confirmed that its order book stands at a whopping £190 million.
The company’s impressive figures also come at a time when demand for supercars is at an all-time high. (You can be reminded of this here.)
We are excited to see what the future holds for the company.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Saietta Group (LSE: SED)
Saietta is an engineering company which produces propulsion motors for the light EV market.
The company’s focus on the Asian market, one of the largest and perhaps least known regions of the EV trend, is what really excites us.
Asia is home to millions of motorcycles, rickshaws and scooters, most of which are yet to be fully electrified.
However, with China and India pledging to reach net zero emissions by 2060 and 2070, we think that Saietta has significant upside.
Saietta is an early-stage company, but is starting to realise its growth potential.
In April 2022, the company announced the opening of an 86,000 square-feet manufacturing facility in Sunderland, in the UK. The facility will be able to produce 100,000 units of its AFT motors per annum by 2024.
The company has several commercial contracts with major customers, including with Padmini VNA, an Indian tier 1 automotive supplier.
For the year ended 31 March 2022, Saietta reported revenues of £3.6 million, a 300% increase from the figure reported in the previous year.
Operating losses increased from £7.3 million to £11 million across the two periods.
However, we believe that the opening of the new manufacturing facility will bring Saietta closer to operational efficiency.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Team17 Group (LSE: TM17)
Team17 is a video game developer and publisher, and creator of the Worms games, arguably one the most popular video game series of the millennium.
Team17 continues to add new, exciting games to its collection.
For example, this year, it has launched a strategic city building game called Sweet Transit, as well as action thriller game Thymesia.
In fact, Team17 has now developed more than 90 games.
The company has also completed the acquisition of Irish app maker StoryToys in a deal worth $49 million. StoryToys has developed apps for Disney and Warner Bros.
For H1 2022, Team17 recorded revenues of £53.2 million, a 33% increase on H1 2021. The company also reported pre-tax profits of £11.2 million for H1 2022, down from £14 million in the year-earlier period.
Given turbulent macro-economic conditions, Team17’s figures are hugely encouraging, and highlight the sustained demand for its games.
We see this continuing, given the access the StoryToys acquisition will give it to new subscribers.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Trackwise Designs (LSE: TWD)
Trackwise Designs is a manufacturer of printed circuit boards (PCBs) for the transport and medical markets.
PCBs are an essential component in the functioning of semiconductors, which are the life blood of many devices, including cars and mobile phones.
Trackwise’s PCB technology, known as Improved Harness Technology (IHT), can provide weight savings of up to 75%, increasing the efficiency of the devices that it powers.
Trackwise has had a difficult year.
In part, reduced demand from major EV customers has impacted its revenues, which have fallen from £4.1 million H1 2021 to £3.8 million in H1 2022.
On 14 September 2022, Trackwise announced that it is in “advanced discussions” with a major EV manufacturer over a new contractual agreement, after the EV customer said that it expects lower production volumes in 2022.
According to Trackwise, this has had an adverse impact on the availability of funding, which it was hoping to invest in capital at its Stonehouse facility. As a result, this has increased Trackwise’s cash requirements, and it is currently exploring other funding options.
Trackwise has also attributed its current challenges to inflation and supply chain issues.
Of course, a -93.19% return in the Buy List isn’t what we expected, or wanted to see.
However, although the company is going through a difficult period, we are confident that it can navigate through it.
Trackwise has said that its pipeline of customers remains “significant”, and that it’s also seeking to bring its third manufacturing facility to full-scale commercial production. It is expected to be ready by the end of 2022.
Trackwise’s involvement in the industries of the future, such as EVs and sustainable aviation, gives us confidence it can grow alongside these emerging trends.
We reiterate our HOLD recommendation on the stock. You can find the original recommendation here.
The HANetf Sprott Global Uranium Miners UCITS ETF (LSE: URNM)
URNM is an exchange-traded fund (ETF) that gives exposure to international uranium-producing companies here on the London Stock Exchange (LSE).
Uranium is an essential ingredient in the production of nuclear energy.
In our view, the current tailwinds behind nuclear energy give the URNM ETF strong long-term potential.
With nuclear promising to bring a more independent, low emission and abundant source of energy, it’s being targeted by policymakers.
For example, the UK is seeking to generate 25% of its electricity demand from nuclear sources by 2050, up from 16% currently.
URNM’s portfolio is adjusted twice per year, including the latest, greatest uranium plays.
These include Cameco (NYSE: CCJ) and Kazatomprom (LSE: KAP). Cameco accounts for around 17% of the world’s global uranium production. Last year, Kazatomprom accounted for 24%.
You can be reminded of all its constituents here.
We believe URNM provides a fantastic vehicle to ride the resurgent nuclear energy trend.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Velocys (LSE: VLS)
Velocys is a producer of sustainable aviation fuel (SAF).
Its patented Fischer-Tropsch technology uses gasification to convert woody biomass and residue into SAF.
Velocys currently has two facilities which are strategically placed to benefit from the switch to green airplane fuels.
Its Bayou Fuels site in Mississippi is set to benefit from tax credits granted by President Joe Biden’s Inflation Reduction Act, which will see $369 billion committed to decarbonising American energy and transport systems. The site is expected to be operational by 2025, and will produce 35 million gallons per year of SAF.
Secondly, the company is developing a commercial plant in Immingham, UK, in partnership with British Airways. The plant is expected to reach full-scale commercial operation in 2027, and will produce 20 million gallons of jet fuel per year.
As part of the UK’s new “Jet Zero” strategy, a minimum of five commercial-scale SAF plants will be under construction in the UK by 2025. There’s also a mandate for at least 10% SAF to be blended into conventional aviation fuel by 2030.
Velocys has also entered into plans to buy a 52,000 square feet construction site in Ohio, although talks are still at a very early stage.
Velocys is still largely pre-commercialisation, and only recorded revenues of £48,000 in H1 2022. Velocys revenues in H1 2021 were £8.2 million. However, they were artificially high because the company recognised the revenue from a major commercial contract which began in 2017.
Velocys undoubtedly has all the ingredients for future growth. Its desire to upscale is productive capacity is giving it a great chance of meeting the growing global need for SAF.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Volex (LSE: VLX)
Volex provides critical power products, including plugs, cables and connectors.
The company’s products are optimised for several key industries, including “big data” and EVs.
Volex’s financial figures are solid.
For the year ended 3 April 2022, it recorded revenues of $614.6 million, up 38.6% on the previous year.
The company also recorded a profit after tax of $30.4 million for the year ended 30 April 2022. This is down from $38.9 million in the previous year, but is nonetheless a hugely positive result.
It shows the sustained demand for Volex’s products even in the most difficult business environment, which is testament to its product quality.
It’s also refreshing to see that sales of Volex’s EV power products doubled across the two periods. EV sales revenue accounted for $100 million of revenues in the year ended 3 April 2022.
This, along with its solid financial structure, gives us confidence that Volex will be able to navigate this tough economic environment, and deliver future value to shareholders.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Yellow Cake (LSE: YCA)
Yellow Cake is a hoarder of uranium oxide, offering direct exposure to the spot price of uranium without exploration, mining or processing risk.
As stated, uranium oxide is the main ingredient in nuclear reactors. Under a heat-intensive process, uranium nuclei are split to produce vast amounts of energy.
Yellow Cake continues to accumulate uranium oxide at an impressive rate.
As of 27 July 2022, the company had 18.81 million pounds of uranium oxide. At the current uranium spot price of $38.94, this values Yellow Cake’s uranium holdings at around $732 million.
In part, the growth of Yellow Cake’s uranium holdings has been driven by its ongoing commercial contract with uranium producer Kazatomprom.
The contract allows Yellow Cake to purchase up to $100 million of uranium oxide from Kazatomprom annually (at the prevailing spot price) until 2027.
This security of supply is a huge positive for Yellow Cake. With its share price closely aligned to the market value of uranium oxide, we can see it rising as it accumulates more, and as nuclear energy gains further traction.
Given the macroeconomic climate, and a more positive stance toward nuclear, we see excellent potential in the company.
We reiterate our BUY recommendation on the stock. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
