Surface Transforms Share Discussion Threads

[bones] 28/1/2021 08:22

Most unexpected but clearly something out there has tickled the masses.

[graham1ty] 28/1/2021 08:16

Anyone know if this has been tipped ? Opening very strongly ?

[rivaldo] 28/1/2021 08:08

Many thanks bomber13, fantastic summary. I've never been as confident about SCE's future as I do now.

[albert_einstein] 27/1/2021 15:42

pinkfoot2, what was the feeling about timescales for possible new contract wins? Anything over the next 3 months say?

[pinkfoot2] 27/1/2021 15:22

Very good Bomber-very much ties in with what I was given in the Placing meetings.Great summary-it’s all about execution now

[albert_einstein] 27/1/2021 13:01

Thanks Bomber, summed everything up very nicely.

Hard not to get excited but an element of caution is still required and things can go wrong.

A couple of big new contract wins and things could look spectacularly good but we haven't got those news ones just yet. Fingers crossed eh.

[bones] 27/1/2021 12:47

Great post bomber! You’ve made all following posts redundant as there is little else one can add.....

[bomber13] 27/1/2021 12:37

Along with some 160 attendees on Monday , I listened to ST present their case for its £20m fundraising at 50p per share .

It now seems clear to me that the burgeoning development of the EV is accelerating the adoption of carbon ceramic brake discs . Their huge weight advantage , their tangible performance advantage , their durability , and their green credentials seem to lend themselves more to an EV than to a traditional IC car , particularly because of the cost , weight and limited range of the battery . According to management this is also having the effect of bringing forward the normal lead times of about 2 years on a typical contract by 9 to 12 months , hence the need to put new capacity in place at the earliest instance .

I have picked out some of what I thought were the more interesting and newer comments from the management's presentation below FYI -

FINANCES -

Given that the cost of building Cell 2 is a little over £9m , and that ST is raising £20m ( gross ) , the FD made the comment that there would be enough cash left over after working capital needs etc to " kick start " construction of Cell 3 , if so required , which is a tremendous position to be in if the contracts start flooding in . Given the relatively quick payback expected from Cell 2 ( 15 months ) , the CEO also declared that cash flow from running Cells 1 & 2 at full tilt " should fund an additional Cell's investment " , which is again very encouraging given the ever present concern of further equity raisings . Moreover , up until this £20m fundraising , the company has had to cope with a very small balance sheet with net capital employed of just £6.75m at end June 2020 , and carrying net cash of just over £1m pre-fundraising . As the FD alluded to , moving not only to a much stronger balance sheet on the back of this equity issue , but also to cash positive earnings for the first time on the back of rock solid long term contracts , this would allow ST the option of raising a modicum of debt .

OEMs -

After signing for a revenue pipeline of £43m with 4 OEM's in the last 18 months , of which OEM 8 represented the lion's share , we know current capacity will be near to full by 2023 . We also know from the written statement in the fundraising document that ST " is confident that ST will be awarded contracts on further OEM vehicles in the near future " , of which potential carry over business on new models for OEM 8 , and a possible new contract with OEM 9 for an EV are the most likely . ST will be sole supplier to OEM 8 , and the CEO stated that negotiations with OEM 9 were " coming along " , and that ST was also likely to be sole supplier . Should contracts for OEM 8 and OEM 9 be awarded , they would be material , and the new Cell 2 would be fully utilised in H2 2023 . ST also stated that there has been continued progress with OEMs 1 , 3 , 4 , & 6 , and with 3 new OEM customers , which were labelled at the presentation as a well-known German car manufacturer , a USA manufacturer , and a European manufacturer . Indeed , ST's contract pipeline has the potential to exceed the entire production capacity of Knowsley ( £75m ) by 2025 .

BREMBO -

Brembo is ST's much larger but only competitor , and the CEO used an interesting footballing analogy to describe their relationship . On the field they are both totally focussed on beating each other to new contracts , and off the field there is a mutual respect and awareness that competition will accelerate growth of the overall carbon ceramic brake market , and that dual sourcing is what OEMs typically want of their suppliers anyway . ST believes that Brembo's newest product , the Dyatom brake disc , is an acknowledgement to ST's superior qualities in strength , heat and durability in that its manufacturing process partly tries to replicate ST's own production process , but fails . Encouragingly , this was the product ST competed against in the most recent beauty parade with OEM 8 , a large global car manufacturer , and ST was subsequently awarded its largest ever contract worth £27.5m over its lifetime . Whilst Brembo produces 200/- discs a year for a turnover of £160m , ST maintains it is not only competitive on price but can compete equally well on cost of production . Indeed , the CEO said that he was confident of reducing costs further .



EXECUTION RISK -

There was a question about the management's ability to deliver the expected growth , which I thought was dealt with well . There have been some recent new senior management appointments , and ST will undoubtedly continue to hire as well as they possibly can . Cell 2 will replicate Cell 1 , there will be no new bells and whistles , and ST is confident of its dual sourced and fully integrated supply chain . The FD told us that he is comfortable with the £5m of cash from the fundraising that is ear-marked for working capital requirements , and I note that this figure is twice the level that joint broker Finncap mentioned in their research note . The company anticipates no unforeseen Brexit effect , and are confident that with the multitude of processes involved in their disc manufacture that it cannot be reverse engineered by AN Other . Although ST don't currently have a warehouse in Germany , where a lot of their potential business evolves , it is now their intention to do so . Interestingly enough , the Chairman stated that the bulk of board meetings was taken up with questions on execution risk , and it is the one thing that keeps the CEO awake at night .



In summary , my overall impression is of a management team not only in tune with the massive opportunity that presents itself , but confident of their ability to deliver the products successfully . In my view , this remains a classy long term structural growth story , now accelerating before our eyes as EV's dominate future OEM planning , and with huge barriers to entry .

[cheese666] 27/1/2021 09:50

Thanks chaps. Is the deadline the 2nd of February for money to be in our accounts for the placing (thinking what my window is for selling my existing shares to make space?

[graham1ty] 27/1/2021 09:35

Bit of indigestion this morning !

[toffeeman] 26/1/2021 16:03

>> Cheese Jeranie1 has it spot on. I am selling some SIPP sh1te to free up cash for the open offer - I don't expect to get many extra though

[jerarnie1] 26/1/2021 14:59

Hi Cheese, your only option unfortunately is to sell shares within the ISA to free up the cash to take up the entitlement

[cheese666] 26/1/2021 14:50

I've used my full ISA allowance and as such cannot add additional funds to purchase even my basic allocation attached to my ISA account. My broker (III) have said that there's nothing that can be done but this doesn't sound right to me?
Does anyone know what the procedure is in this case please?

[t0pgrader] 26/1/2021 13:44

Yes you missed the fact they generate less heat

[rivaldo] 26/1/2021 10:36

I had to miss the last half hour of the call, so thanks to all for the comments/summaries. Hopefully the entire call will be replayed on Hardman's web site (it isn't there yet).

The timelines for the newer (electric vehicle?) OEMs are very encouraging - can't be that long as others have said before we get some nomination/formal contract news.

[longshanks] 26/1/2021 10:33

ST disks can also be made to any size Albert. When you combine regenerative with emergency braking needs, I am sure that there are some optimisation points that could lead to much smaller disks.As the ST disks don't use moulds, the opportunities are self evident.

[distill] 26/1/2021 10:20

Well just got in again 2338 shares, last of the spare cash

[albert_einstein] 26/1/2021 10:14

So, even though ST brakes are expensive the EV manufacturers see the extra cost as justified because it not only improves the braking but reduces the weight of the vehicle, potentially increasing the range and/or reducing the size of the battery needed, whilst at the same time being more enviromentally friendly (less dust) and cosmetically attractive. Have I missed anything?

[condom2] 26/1/2021 10:07

Thanks Timbo , that clears things up

[timbo003] 26/1/2021 09:04

It looks as if most of Cannacord's shares are held in their (Hargreaves Hale) VCT rather than private clients

From the Hargreaves Hale VCT annual report (year ending 30th Sept 2020)




Share price at Sept 30th approximately 41p/share so a valuation of £4.06m corresponds to around 9.9m shares


From SCE RNS released on 31st July 2020


Cannaccord holding 15,450,934 shares

So it seems likely that the majority of the Cannacord shares are held in the VCT and so the open offer rights associated with those shares will not be taken up.

[jerarnie1] 26/1/2021 08:53

More positive user comments to confirm what we already know, but always reassuring to read...https://gr-yaris.co.uk/forum/threads/carbon-brakes-anyone.1021/#post-18185

[pinkfoot2] 26/1/2021 08:47

In my opinion, the company doesn’t need to raise any more than it has so why do it?If you want more stock, I would buy in the market as this is only going one direction.

The Placing has been hugely successful and we have a very tight shareholder base-that is great news so time to move on and focus on delivery

[graham1ty] 26/1/2021 08:41

Einstein, for those who have been holding their breath for the OEM3 announcement for over five years ( and the aerospace for ten years !!!) we do not expect an imminent announcement. If it does come quickly, horay. But we have already waited quite a while.

Anyway, if OEM5, OEM8 and OEM9 deliver further models, OEM3 will get left behind. SCE will have plenty to do even if OEM3 does not come through for a bit longer

[albert_einstein] 26/1/2021 08:35

Are you expecting anything imminently from either OEM3 (one way or the other)or carry over from the earlier OEM deals?.

OEM 3 would be a very interesting deal were it to happen.