Surface Transforms services demanding fast cars, high performance motors, and even electric vehicles, writes Mark Watson Mitchell.
The Porsche GT2, GT3, Turbo and Cayman, the Ferrari 430 and 458, the Nissan GTR R35 and the Aston Martin V8 Vantage – what do the owners of these demanding vehicles have in common?
The very simple answer is that Surface Transforms (LON:SCE) has developed performance brake packages for such vehicles.
Is it a phenomenon?
This £77.5m capitalised company is something of a phenomenon. In the last year it generated revenue of around £2m, yes just £2m, upon which it probably lost £2.5m for the year to end-December 2020.
However, those who know a thing or two about the company are reckoning that it really could turn out to be an absolute winner.
They are going for the company’s sales to more than treble this year to just under £7.5m, while its losses will be reduced by some 84% to just £400,000.
Brokers foresee good times ahead
But then we will see a massive turnaround next year, with Zeus Capital’s analyst Robin Byde going for £12.5m of sales and £2.2m of pre-tax profits.
So why is this company different?
So, what is so special about this company? What have they got that that makes it such a potential mega-player in its sector?
It is highly innovative, it has its own patented materials technology and boasts a team of highly qualified engineers who are developing new processes for the production of carbon-ceramic materials.
A next-generation mover
Particularly, the company is lining itself up to be a manufacturer of next-generation brake discs for both automotive and aircraft applications.
The material technologies were originally developed by ICI. It was the perceived potential for exploiting the new composite materials around which the company was formed, way back in 1992.
OFEX then AIM float
From its 2000 quote on the old OFEX market, Surface Transforms then progressed to AIM a couple of years later.
It has taken since then to see the company really beginning to harness its ability to take it forward over the next few years sufficient enough to justify its current market value.
Tremendous product advantages
The company utilises its proprietary next generation Carbon Ceramic Technology to create lightweight brake discs for high‐performance road and track applications for both internal combustion engine and electric vehicles.
Unlike competitor-made carbon‐ceramic brake discs which use discontinuous chopped carbon fibre, Surface Transforms interweaves continuous carbon fibre to form a 3D matrix, producing a stronger and more durable product with improved heat conductivity compared to competitor products.
That helps to reduce the brake system operating temperature, thereby resulting in lighter and longer life components with superior brake performance.
In comparison to iron brake discs, all carbon‐ceramic brake discs enable up to 70% weight savings, as well creating longer product life, consistent performance, reduced brake pad dust and being corrosion free.
Only UK maker
It is the UK’s only manufacturer of carbon‐ceramic brake discs, and only one of two mainstream carbon ceramic brake disc companies in the world, serving customers that include major players in the global automotive markets.
In the last year the company has achieved some transformational commercial success in its negotiations with a number of major, world-renowned, motor companies.
It has been a very slow process
Dealing with quite a number of original equipment manufacturers has taken time. However, it made a significant breakthrough when it announced a £27.5m contract from a global vehicle manufacturer – whom they call ‘OEM 8’, to be the standard fit, sole supplier of the carbon ceramic brake disc on both axles for its high-performance car.
That contract gets underway this coming summer, worth £8m a year over the next three years or so, potentially to be extended.
A number of OEM discussions underway
The company has reported that around half of its current projects relate to electric vehicles.
That is an increasingly important segment of the vehicle industry that particularly values the low weight of ceramic brakes, coupled with the performance to deal with what are inherently fast and heavy vehicles.
Trading update points the way
Earlier this week the company issued a trading update for the last year, together with an outline of its OEM pipeline.
The company’s Chairman, David Bundred, stated that, “2020 has been transformational for the company with new vehicle nominations and a significant increase in contracted pipeline revenues. Moreover, testing and negotiations with both existing and new OEM clients alike are progressing well and we remain confident of being nominated on further vehicles in the near future. We continue to expect to see the impact of this success in the 2021 results and beyond.”
We will have to wait until the finals are preleased in May to see more detail on the last year’s progress and the company’s prospects. However, it would not surprise me if we saw another announcement or two with reference to even more OEM projects.
A serious proposition?
The company’s shares, which are trading at around 50p, just a few pence short of their all-time High of 56.5p, could easily rise to over 65p, thereby valuing it at £100m.
This is serious money for a serious technology that has masses of profit-earning potential – there are loads of stocks out there with far higher valuations for less enticing prospects.
(Profile 19.09.19 @ 17p set a Target Price of 30p*)