Home 190522 RoodMicrotec | SCM: Stability Creating Momentum [Issuer Sponsored Report]
190522 RoodMicrotec | SCM: Stability Creating Momentum [Issuer Sponsored Report]

190522 RoodMicrotec | SCM: Stability Creating Momentum [Issuer Sponsored Report]

No. pages 32
Description

RoodMicrotec is an independent service provider for companies that develop Application-Specific Integrated Circuits (ASICs) for use in the Automotive, Industrial, Healthcare and HiRel/Aerospace sectors. Until fairly recently, the company’s services only included engineering, testing and programming, qualification and reliability analysis, and failure analysis, on an individual basis. Through close co-operation with a select group of highly specialised business partners, the company now also offers services that cover all aspects of the ASIC value chain, from the design of semiconductors, all the way to the delivery of the end-product (serial parts).

This full-service concept is referred to as Supply Chain Management (SCM).

The key advantage of the SCM contracts is that – in contrast to the ad-hoc nature of the contracts for individual services – they enable the company to create income streams of a more recurring nature over the full life span of a product (up to five years and often even longer), which contributes to more predictable revenue and improved stability in the long run.

The transformation from a rather cyclical company, highly dependent on ad-hoc business, into one with improving visibility and a more stable revenue will take time. Since the company decided to prioritise growth in SCM, it has secured six contracts until recently. Five of the six contract are in the production phase. One contract was terminated because a customer decided not to go ahead with the development of the end-product.

Last week, when RoodMicrotec issued its 1Q19 trading update, the company announced that three out of its four SCM projects under negotiations have been converted into contracts. These are now in the engineering phase and the company expects production to start in 2020 and 2021. This brings the total number of SCM projects to eight.

Additionally RoodMicrotec is in negotiations on three new projects with different customers, two in the Automotive market and one in the Industrial market. This offers the opportunity to increase the number of SCM projects to twelve. With the growing number of projects the revenue share of the SCM contracts (last year approx. 25%) will steadily rise to a much higher level.

Financially, RoodMicrotec has been making good progress. In the past three years, the company managed to grow its revenue by 9.5%, per annum, on a Compound Annual Growth Rate (CAGR) basis and posted a net profit again in 2018. The balance sheet shows a net debt of EUR 0.9m or a mere 0.7 times Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). Notably, the company has issued EUR 2.5m in perpetual bonds to meet its obligation towards the German pension fund. Although the interest payments have been subject to certain conditions (which are not expected to be met in the near future), the very high coupon of 11.70% is a factor to monitor closely. Consequently, looking at the reported debt ratio in isolation would be incorrect.

Looking ahead, the company has set financial targets for 2020. Delivery of these targets will mainly depend on two factors. Most importantly, revenue growth will have to remain in line with that of recent years. It will be less crucial, but similarly important to monitor the revenue mix (with a somewhat lower gross margin on SCM contracts).

Content

       Summary and Conclusion
1.    Introduction
2.    Activities
2.1. RoodMicrotec: an independent service provider
2.2. What is an ASIC?
2.3. The ASICs value chain: from design to logistics
2.4. Strategy
3.    Market Environment
3.1. Introduction
3.2. Automotive sector
3.3. Industrial and Healthcare
3.4. HiRel/Aerospace and Other
3.5. Competitive landscape
4.    Historic financial performance
4.1. Profit and loss account
4.2. Balance sheet
4.3. Cash flow
5.    Deliverables
5.1. Financial targets
5.2. Scenarios
5.3. Valuation multiples
6.    SWOT analysis

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RoodMicrotec | SCM: Stability Creating Momentum

Created Date: Wednesday May 22, 2019 12:28:21
Last Updated Date: Wednesday May 22, 2019 12:28:21
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