SED-ition Part 3
See through the smog - is that an investment case I can see?
Reader, I’ve placed the impact of the recent fundraise in the above grid for ease of reading.
SED-it was
Re-reading my recent articles on SED-ition Part 1 and Part 2 I note the following:
New smart money, II, joined the party. Janus hold 6%.
A successful fundraise which supports the business until Q2 2024.
My estimates on cash shortfall were almost identical to those disclosed in the RNS
My estimates on dilution the same. I had assumed 16p so 17p is a slight improvement of terms.
The Conmet revenue is going to be later and slower than I anticipated. The company speaks to FY2026 and beyond for revenue. (Reinforces the logic of cutting the project though doesn’t it?)
November 2024 is a low point for cash. After which the business is cash generative - as my P&L model foresaw
As I thought alternative sources of finance will also be explored:
“other options that will be explored may include investment or other financial support from one of its existing OEM relationships, debt financing, or a further equity fundraise.”
Management’s estimate of EBITDA profitability of Saietta VNA is about 20% above my own estimate.
The OH WOW moments
It was very gratifying to read about the near term pipeline - which is now £366m (over 4 years so £91.5m revenue a year).
Set out below is the pipeline of material near-term contract opportunities, the status of each, and the Company's milestone targets for March 2024. These exceed my FY2025 forecasts by over 20%!
Reading management’s worst case, base case and best case is very instructive. The best case is producing 1m AFT/RFT motors a year. The oh wow was the FY26/27 forecast of EBITDA of £42.1m for VNA. In small print it says Saietta’s share which of course is 49%….. in other words the Indian operation (Saietta VNA) is forecast to be generating getting on for £100m EBITDA profit in just 2 years time!!!
Now that is EBITDA not net profit, and there’s the 49% share, but my estimates of FY2026 £14m profit share and royalties to SED group, looks entirely achievable - and beatable.
The Near term pipeline
- Supply of AFT eDrive for initial OEM customer (3-wheel vehicle)
Indicative revenue for Saietta VNA to 31 March 2028: £85 million
Forecast contract commencement date: November 2023 (pilot production commenced)
Status: Purchase order received for pilot production as announced 27 September 2023
- Supply of RFT eDrive for initial OEM customer (3-wheel vehicle)
Indicative revenue for Saietta VNA to 31 March 2028: £71 million
Forecast contract commencement date: March 2024 (pilot production commences)
Status: Purchase order received for pilot production as announced 13 November 2023
- Supply of RFT eDrive for separate OEM customer (2-wheel vehicle)
Indicative revenue for Saietta VNA to 31 March 2028: £92 million
Forecast contract commencement date: January 2025
Target milestone by March 2024: Proof of concept letter from customer
- Supply of AFT eDrive for initial OEM customer (4-wheel vehicle)
Indicative revenue for Saietta VNA to 31 March 2028: £60 million
Forecast contract commencement date: March 2024
Target milestone by March 2024: Initial purchase order from customer
Saietta Group plc
- Contract manufacturing of Electrical Steering Pump
Indicative Group revenue to 31 March 2028: £58 million
Forecast contract commencement date: August 2024
Target milestone by March 2024: Letter of Intent from customer
Risk
Armed with POs, a LOI, and potentially a thawing market in 2024, the next fund raise feels like it will be less risky. A further £4m+ is needed - but there’s optionality.
Rather than being “ooh livin’ on a prayer”, instead SED can say “we’re halfway there”. Can I say “we’ll make it I swear?”. Of course risk remains. On paper. But in the 27/11/23 RNS, management have put into numbers a very strong business case. I remain convinced that if the 11th hour ever arrives on cash, a customer will step in and fund Saietta. Do you remember MAD (Mutually assured destruction)? Well if Saietta goes pop, that is hugely disruptive to several customers. Remember they are tooling, designing, marketing and pouring tens of millions into a vehicle design before selling a single Tuk Tuk or Motorbike. It’s not as though they can swap out the RFT or AFT and get one from SED’s competitors to replace it can they? Or even if they could, no competitor of SED is based in India. That fact alone is key. So tell me - what risk, exactly?
Tailwind
Pollution is perhaps the most acute problem affecting India right now. It’s right up there in the national consciousness. On average each Indian’s life is shortened by 12 years - SED is selling into a market desperate for its solution.
So when management speak to a downside and upside case, I struggle to see how the downside case can play out. It feels like this has a strong momentum due to the chronic pollution.
Meanwhile the Indian electric vehicle (EV) market is gaining momentum says the Times of India through subsidised EV connections.
Upside
The upside remains - in fact the EBITDA upside is 20% stronger today than when I ran my original numbers.
Remember too reader, my numbers included Propel. SED assume zero even though an objective management state is to by 31/3/24 to Materially progress the monetisation of intellectual property held over the Group's marine products.
About a 1/3 of my forecast net profit in FY2026 was forecast to come from Propel. So on that basis my numbers aren’t 20% lower, they are nearly 50% lower for AFT/RFT.
There’s a very exciting upside here in my opinion - and in the opinion of SED’s management.
There’s a lower risk than the market perceives in my opinion.
This is not advice. If you need investment advice go and get it, is my advice.
Have a good evening
Oak