Friday Take Away: 4th October 2024

4th October 2024

Alphabetically arranged

Share prices and market capitalisations taken from the current price on the day of publication


AUK- Smart Growth
CCT- Character Built
IKA – Waiting for a Power Surge
ITG – Stimulated Real Value



Aukett Swanke 1.675p £5.7m (AUK.L)

The original architecture practice was founded in 1906 and recently it formed a Smart Buildings division whose first combined interims to March 2024 were reported on 28 June. Revenue, including the new businesses, escalated to £9.45m from £4.56m but there was, however, an increased trading loss to £0.81m from £0.29m due to the process of transforming itself from professional services to technical services.

The recent trading update for the second half of the year to September 2024 is expected to breakeven with turnover of c. £20m, so the full year loss will be similar to H1. Annual cost reductions of more than £2m are being implemented and a freehold property was disposed of for £2.5m, which including the March £425k funding at 1p for an acquisition will broadly eliminate net debt. There is a 25% holding in Aukett Heese GmbH, a German architecture practice, paying a regular £250k+ as a share of its full profits. This non core holding could be worth at least 3x the implied £1m profits a year.

AUK is at a relatively early stage of providing smart buildings services. Since March 2023,  there have been four related acquisitions and further deals seem likely. Two of the recent acquisitions are ecoDriver, a consultancy services with proprietary software  aimed at improving a building’s energy efficiency. It has monitoring software, provides IoT sensors and other hardware to monitor environmental data on an easy to use dashboard. Vanti was opportunistically acquired from administrators just before these Interims and brings further software assets and an established Master Systems Integration branded platform. It has already added over £2m of contract wins and seems a bargain.

Comment: The improving balance sheet and transforming trading prospects could make this a smart ground floor opportunity.



Character Group 274p £52m (CCT.L)

The designer, developer and international distributor of toys, games and giftware announced a trading update ahead of finals to August 2024.  After the Interims recovered to a PBT of £2.1m from £0.5m on virtually unchanged revenue of £57.4m, it prosaically expects  finals to be, ‘in line with current market expectations’.   The second half, however is usually far stronger as it contains much of Christmas trading and even if it  is just at previous level of profitability (it should be more), a PBT of £4.7m gives an EPS of 20p for a P/E of 14x and a 19p dividend was paid last year giving a 6.6% yield. We anticipate a slightly lower final dividend due to the share buybacks, despite an unchanged 8p being declared at the Interims.

The business was founded in 1991, and over the years has not only built a strong portfolio of branded toys, but also trade contacts, blue chip clients, and a deep industry knowledge. It sells a wide range of licensed and non-licensed products from offices in London, Manchester, Denmark, Los Angeles, Hong Kong, and China, and employs over 230 people.

Its new releases are Terror Fried, Coo Zit Ju and Simbrix. Other brands are ChillFactor, Doctor Who, Flying Heroes, Teletubbies, Stretch Armstrong, Fireman Sam, and Ben and Holly. The 3rd party distributor licenses include, Teenage Mutant Ninja Turtles, Fingerlings, Shimmer N’ Sparkle, Mash’ems, LankyBox, and Aphmau.

Initial sales for the Christmas '24 season are encouraging especially the new releases. There is no long-term debt, and the Company have also been a persistent buyer of its shares for cancellation and last paid 298p. FY results are scheduled to be released in December.

Comment:  The rating seems to undervalue the fundamental track record.



Ilika  24p £39.3m  (IKA.L)

The developer of solid-state battery technology has just completed the testing of its Goliath D5 prototypes relative to lithium-ion equivalent batteries.  The testing reconfirmed the benefits of Goliath across several key variables - reinforcing the fact that Ilika's cells have the potential to provide electric vehicles (EV) with lighter, safer, cheaper batteries with longer ranges and faster charging capabilities. 

The finals to April 2024 reported on 11 July showed £2m turnover, mainly from Asian customers, and a loss before tax of £5.76m. A top-up funding in May, raising at £2.3m at 29.5p  added to existing cash to make £14.3m, so  there should well be over 12 months of funding. It receives grant income and recently entered a ten-year licensing agreement and technology transfer with Cirtec for batteries used in medical devices. 

The EV battery benefits are achieved by optimising the cell architecture to increase Goliath's unique safety and added value proposition without compromising cell energy density. This means that EV designers can reduce the mechanical protection and reinforcement that would otherwise be required to protect the battery pack.  This milestone pushes the technology further down the line to the next data point for larger area 10Ah batteries the results are expected to be announced in November 2024 and perhaps with the Interim Trading update. Management consider the tests will underpin licensing opportunities as the journey accelerates towards a viable product.

Comment:  As milestones are passed, the market capitalisation should improve.



Intelligent Ultrasound Group 10.625p  £34.9m (IUG.L)

This ultrasound AI software and simulation Company completed the sale of its Clinical AI Business. Intelligent Ultrasound LTD and other clinical AI related assets have been sold to the mighty Nasdaq listed GE HealthCare for an enterprise value of £40.5m on a cash free/debt free.  This equates to 12.4p per share valuing the Clinical AI Business at almost 34 times its 2023 revenues.

The disposal excludes the NeedleTrainer product range which is part of the remaining Medical Simulation Business. It has been developed over the years and includes ScanTrainer obstetrics, anew release Bodyworks Eve and a gynaecology training simulator. IUG’s business generated revenues of £10m in the year to December 2023. The cashed-up management team is reviewing the Simulation Business and evaluating the growth potential of the medical simulation market and the capital requirements of achieving breakeven. The Simulation market was valued at $1,687m in 2020 and is projected to reach $6,688m in 2030, as reported by Allied Market Research.  The shareholders include IP Group, with 20%, Octopus Investments 11% and Polar Capital Partners 8%, with other main shareholders and directors owning a combined 66%.

Assuming some funding for the Simulation business from the £40.5m, the Board intends to make a material tax efficient return to shareholders.   Further news is expected on the investment plans and distribution after the capital reduction AGM on Tuesday 15th October.

Comment:  The AI business was sold for £40.5m and the market capitalisation is £34.9m, implying little value to the Simulation Business. The amount of the cash distribution could soon be known, and shareholders seem set to benefit.



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