Found this filled in a few gaps in my knowledge: |
hpcg
"VC should fund and they know the value of up rounds, whereas for small listed companies it is the fear of the placing that drives the price."
I'd agree with VCs for start-ups, but Ensilica was started in 2001 and had a good track record when it listed. VCs have their problems and the worst (from a new investor perspective) sort of new issue is usually where the VCs unload all their shares with minimal new funds being raised.
"Companies should be growing much larger before listing and then use listing to be able to offer share-based payments and incentives well down the org chart."
Getting a listing just to gain the ability to offer share based payments and incentives is a rather expensive way to sort out a staff remuneration package!
You are right when you say the UK stock market is dying - the decline in new issues demonstrates that as well - and it will continue to be like that until we get back to its purpose of raising capital. |
Valhamos - I disagree. The UK stock market, which to all intents looks like in its dying days, is about the worst place for a small company to look for funds. Companies should be growing much larger before listing and then use listing to be able to offer share based payments and incentives well down the org chart. This is how many US companies grow. VC should fund and they know the value of up rounds, whereas for small listed companies it is the fear of the placing that drives the price.
Margins - these dramatically increase for the production element. The design phase is done at a lower margin in order to win the business. Allenby make the point by labelling the NRE as a lead indicator for supply.
What the company needs to be doing, if it can, is to raise the cost of the design phase element so that each project covers its own cost and share of SG&A and interest. I don't know what the competitive situation is like for them to be able to do that. |
Hallelujah |
It would be interesting to be a fly on the wall during float conversations, to find out if other funding routes are unlikely or not possible or not sufficient, or just too hard work.
Unfortunately the area is badly tainted by financial “operatorsR21; who have the contacts and the BS to get away with floating unproven and uninspiring business models, dressed up in kings new clothes to convince new investors that their amazing opportunity is a once in a lifetime chance.
The story will always be that the opportunity will go missing unless they move fast. |
Cheers, multibagger.
Actually there were other comments by Anthony Miller that were either mischievous or indicated he doesn't really understand the business. So much unwarranted negativity! |
In the good old days, companies used to prove their business models, become profitable and then float for big expansion.
Although I may have old rose tinted pre-AIM glasses on.
Actually they still do and often take a dive as the float price was 50% too high - probably because profit projections were.
Actually in the good old days you had 5 years to get your business going, without instant global competition, so I guess a prompt float is often necessary now if the opportunity is good. Although opportunity is in the eye of the beholder! |
A very well made point Valhamos ! |
I'm going to have to disagree with the idea that Ensilica IPO'd too early. The company wanted funding for its planned growth in its design and supply business. If it waited until it didn't need the funding what would then be the point of an IPO? And where would it have got the funding to grow if not from the stock market? Surely that's the primary purpose of the stock market? I guess too many private investors think the stock market is there just so they can watch share prices moving up and down. |
looks like there's an overhang to clear. |
Yump,
You'll find him on LinkedIn: |
SG
Slightly worrying changes on those figures. Just have to wait to see if their capturing of contracts in what is a growing market will give them a higher rating in one way or another. Shame they went to market too early (for the UK anyway). Net debt wouldn’t matter in the US if a business was rapidly getting market share. |
Who is Anthony Miller ? Seems quite a balanced article. |
Tic toc Pug. |
memo self at 38.5/39.9 Keep finger off buy button - Only time will tell if a correct gut-feel. |
I recall when IQE was one of the stock-market darlings ('the next ARM') - look at that one now ... |
Net cash expectations:
Sept 2024
2024: £1.9m
2025: £3.9m
2026: £8.2m
November 2024
-2024: £1.1m actual
-2025: £2.7m net debt
-2026: £2.4m net debt
That is a drastic change in expectations. |
Interesting to see the difference in the thinking between paid advisor and private investor. Both I suppose have different biases - cannacord getting paid vs PIs using (or at the moment losing) their own cash.I don't think the story has changed, cash spender for a bit longer but (extremely) cash generative in the future. You rather believe the story or you don't. |
 Anthony Miller - 5/11/24
I worry that Abingdon-based ‘fabless’ ASIC (Application Specific Integrated Circuit) designer EnSilica could become a victim of its own success.
Today’s FY results came with a guarded warning that EnSilica could run out of cash within the next 12 months without additional financing.
Cofounder and CEO Ian Lankshear attributed the problem in part to customer order and payment slippage, and in part to ‘complications’ in the global semiconductor supply chain exacerbated by the deteriorating relationship between the US and China.
The latter was already evident and beyond EnSilica’s control.
The former leans towards overoptimistic forecasting (see my recent post on Substack at In fact, EnSilica now has a new CFO.
In truth I think the problems are of a more fundamental nature.
First, EnSilica is both a semiconductor design and a supply business. The design is done in-house, the manufacturing by partner foundries.
While this business model has the advantage of long-term, recurring revenues (8-10 years is not unusual), it is also hostage to changing demand in customer delivery schedules, as has already happened.
Second, as I have said many times before, management chose to IPO far too early, in my opinion.
EnSilica listed on AIM in May 2022 when its revenues were under £10m and was losing money. Since then, management has had to go back to investors and lenders multiple times – all, of course, in the unforgiving spotlight of a public market. EnSilica’s shares currently trade around 4p below the 50p IPO price.
EnSilica is growing fast on the back of an impressive order book. Revenues last FY (to 31st May 2024) exceeded £25m, though the company is now back to a (small) net loss.
However, this rapid growth – along with the aforementioned challenges – means that the business spends more cash on capex than its operations generate. And this gap risks widening the faster EnSilica grows.
I would not want EnSilica to suffer the same fate as its ‘neighbour’, semiconductor design startup, Sondrel, which listed on AIM a few months after EnSilica.
Never having made a profit, Sondrel quickly ran out of cash, its shares crashed and Sondrel delisted from AIM in August at a fraction of its IPO valuation (see
For now, EnSilica is in a much better position than Sondrel ever was.
But Lankshear and new CFO Kristoff Rademan need to take a long, hard look at the best capital structure that will help the business achieve its proven potential in the long term.
EnSilica should be cherished as a jewel in the UK semiconductor industry crown. Personally, I think it will be in the best interests of its customers, employees and backers for EnSilica to go private on its own terms while it still can.
-Source: LinkedIn |
"they are clearly going to need more external finance, as they make clear."
Actually no, they made it clear they do not need more finance (with the possible exception of a very large contract win which would require substantial upfront funding for development). |
one's toe has been dipped. |
From the Albany note the interest rate on existing debt sends its own message. If Albany's estimate of the rate for the new Lloyds debt at 8% is correct then encouraging but how accurate? Also what, if any, trigger conditions for the rate to be increased. |
A drop always precipitates looking for business model reasons when it is often just a bit of selling.
As with many companies working towards decent profits, a current snapshot is misleading. The revenue vs profit ratio is always uncertain until the business reaches a critical size. Nobody promised a jump in ebitda for the year just reported. Waiting doesn’t suit everyone.
The gross margin in itself is a bit low but not a big problem.
Capitalising R&D is partly subjective, depending on whether you view the R&D as adding to future IP value or as a per-project cost. The first produces ongoing exceptionals and higher ebitda, the latter hits ebitda but results look cleaner because of fewer exceptionals.
Not sure institutional involvement is a good indicator. Double edged sword quite often. |
I hope not but there is no intrinsic value in the shares. The margins are so far insufficient to generate any meaningful profits, this is a tiny fish in a very large pond. All we really have is the 2025 EBITDA target and faith in the business model and the people executing it.
I have a horrid feeling that cash flow is going to be a big factor - the clients tend to be large multinationals, famous for screwing smaller supplers of goods and services. The only really good news for me has been the apparent decent flow of new business orders and the fact that the board and management appear really well qualified.
It is too small and risky for any serious funds yet - Amati has a small position presumably in their Aim Fund - but I can't see any other institutions among the bigger shareholders. And given the high level of skill required for employment here - surely implying high personnel costs - they are clearly going to need more external finance, as they make clear. |
Today's drop is on very low volume so I don't mind buying a few more. It should pop if a bunch of new contracts are signed soon. |
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