– Chip tech company to list on AIM later this month
– £20 million growth funding to boost R&D
– Sondrel likely to remain loss-making for some time
UK microchip technology company Sondrel plans to list shares on London’s junior AIM market to raise growth funding and provide the stable financial footing needed to capitalise on its substantial ambitions. Should investors back the company?
Sondrel is an ASIC chip designer based in reading. ASIC (application-specific integrated circuit) chips are designed to do a particular job, rather than provide more general computing power, such as the microprocessor and random access memory chips in a PC or smartphone.
They are used extensively in bitcoin mining, for example.
It has been around for about 20 years and has created ASIC and system on chip (SoC) designs that have been used by blue-chip global clients. Previous designs have been used in products such as Apple (AAPL:NASDAQ) iPhones, Sony PlayStations, Meta’s (META:NASDAQ) Oculus Quest virtual reality headset, Samsung, Google and Sony smartphones, JVC prosumer camcorders, and by Tesla (TSLA:NASDAQ) and Mercedes-Benz cars.
IS SONDREL PROFITABLE?
The company has been profitable in the past but the pandemic changed this situation.
Companies House filings show revenues last year (to 31 December 2021) of £7.52 million, up 14%. Sondrel claims compound average revenue growth of 20% a year between inception in 2002 to the end of 2021.
But cost of sales (salaries and raw materials) in 2021 ran at almost £9 million. It reported another £3.4 million of additional admin costs. Factor in interest payments and its tax income, Sondrel’s net loss last year was £4.56 million.
It ended last year with just £423 in the bank.
It clearly has work to do and this is why the company is hoping to raise about £20 million of fresh growth funding. New money will be used to shore up its balance sheet but also allow the company to hire more technology engineers, particularly in the US, and boost its R&D.
Sondrel currently has a team of 137 engineers that are located across design centres in the UK, US, China, India and Morocco.
WHAT IS THE GROWTH OPPORTUNITY?
There is opportunity for possibly even faster growth ahead. Sondrel claims the potential for up to £300 million revenue in the pipeline, as of 31 July 2022, with the possibility of ‘material related production and supply revenues’ beyond that figure. The medium-term ambitions is for annual sales of £100 million.
This is the ‘start of the next phase,’ said Graham Curren, founder and chief executive.
‘We have always been constrained by a lack of cash and this gives us more options to raise more money and shows we are in this for the long term,’ said Curren. It is why the company went down the public markets route rather than tapping venture capital for funding, Curren explained.
These comments are encouraging but investors should be wary. It suggests that shareholders will have to be patient and probably will need to be willing to tie up their money in the shares for at least five years, maybe longer. It also sounds like they will have to be willing to back potentially multiple cash calls down the line as more funding is needed to help grow the business.
The sensible approach might be to wait and watch. Seeing how the financials have progressed in 2022 would be logical, with results presumably likely in March or April 2023. And hearing more detail from Curren on growth plans and how he plans to achieve them will also provide invaluable information for potential investors.
The stock is due to list on 21 October under the ticker SND, with an implied £50 market cap for Sondrel.
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