Silex Systems Limited

Company Overview: Silex Systems Limited (ASX: SLX) is mainly engaged in the research, development, and commercialisation of the SILEX Uranium Enrichment Project along with US-based Global Laser Enrichment (GLE), a ‘Zero-Spin Silicon’ project with UNSW in Sydney & Silicon Quantum Computing (SQC) and potential deployment of ‘cREO®’ technology in 5G high-frequency filter applications through IQE.

SLX Details

This report is an updated version of the report published on 1 April 2022 at 3:49 PM GMT. 

SLX Rides on Robust Product Adoption & Customer Base: SLX is positioning well to accelerate its plan to commercialise the SILEX uranium technology project along with Global Laser Enrichment LLC (~51% stake in GLE). SLX continues to make good progress by implementing GLE’s technology demonstration project and commercialisation strategy.

Spotlight on 1HFY22 Results:

• Robust Top-Line Performance: In 1HFY22, the company witnessed a rise of ~$2 million year over year in revenues from ordinary activities, which came in at $2.12 million. The rise can be attributed to befits incurred from the recently completed restructure of GLE. The company also incurred an accrued royalty revenue from sale of cREO® technology of $688,598 as at 21 December 2021, up from $666,128 as at 30 June 2021.
• Robust Customer Base & Rise in Customer Receipts: The company remains on track to engage itself with potential customers, including major semiconductor companies. Silicon Quantum Computing (SQC) and UNSW Sydney are initial customers of SLX. Receipts from customers and government grants in 1HFY22 rose by $2.0 million on pcp basis, thanks to the receipt of $1.9 million of recoverable project costs from GLE.
• Bottom Line and EBITDA Highlight: EBITDA loss in 1HFY22 came in at ~$4.3 million, up ~12.6% from the previous year. The company’s losses after tax in 1HFY22 increased by 17.1% year over year and came in at ~$4.4 million, due to an increase in activities at GLE during the half-year.
• Liquidity Position: At the end of the period, the cash and term deposits amounted to $49.2 million, depicting a rise of $35.1 million from 30 June 2021. The company completed an equity raising program in 1HFY22 through placement and Share Purchase Plan. The company expects to utilise the net proceeds of $38.4 million on advancing the commercial pilot presentation of the SLX uranium enrichment technology, scale-up of Zero-Spin Silicon production capacity & general working capital requirements. SLX generated an operating cash inflow of $0.8 million in 1HFY22, compared to an outflow of $3 million reported in 1HFY21.

Key Strategies; Analysis by Kalkine Group

Recent Update: Recently, the company was informed by London-based IQE Plc that it had stopped the development of the innovative cREO® advanced semiconductor technology while waiting for a commercial opportunity to occur.

Key Metrics: The company's strength is depicted in the current ratio of 20.14x in 1HFY22, which is much higher than the industry median of 2.74x.

Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 27.3% of the total shareholdings, while the top 4 constitute the maximum holding. Jardvan Pty. Ltd. held the maximum number of shares with a percentage holding of 14.57%, followed by Goldsworthy (Michael P. Ph.D.) holding of 2.97%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: The company faces the risk of technological changes, stringent regulations, stiff competition, integration risk and foreign currency fluctuation risks, which may have a denting effect on the company’s agility, innovativeness, and ability to compete efficiently. Failure to achieve the desired results of the SILEX uranium enrichment engineering development program may negatively impact the future results and commercial prospects of SLX. This apart, SLX posted a loss after tax of $4.4 million in H1FY22, which may significantly drain its cash levels.

Outlook: SLX focuses on ramping up the GLE joint venture led by a new leadership team and fostering the SILEX technology commercialisation program. The company is also exploring potential value-enhancing applications of the SILEX technology around medical isotopes. The company also remains on track to strengthen its foothold in the US through the Paducah uranium production prospect, reinforced by GLE’s pact with the US Department of Energy (DOE). GLE’s Paducah commercial opportunity can produce ~5 million pounds of uranium per year for thirty years, with an estimate of the long-life and low cost of production.

Stock Recommendation: The stock of the company has been corrected by ~6% in the past three-months. Currently, the stock is trading below the average of its 52-week high and low levels of $1.97 and $0.86, respectively. On a TTM basis, the stock of SLX is trading at a price to book value multiple of 4.5x, lower than the industry (Semiconductors & Semiconductor Equipment) average of 5.1x, thus seems undervalued. Considering decent liquidity position, rise in top-line, positive outlook on the back of long-term customer contracts, government grants, strategic deal, SILEX technology commercialisation program, current trading levels, valuation on TTM basis, technical levels mentioned below, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.245, as on 1 April 2022, 3:30 PM (GMT+10), Sydney, Eastern Australia. Markets are currently trading in a highly volatile zone due to specific macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Technical Commentary

On the daily chart, SLX prices are trading above the falling trend line breakout level and taking the support of the trendline. Moreover, prices are trading above the trend-following indicator 50-period SMA, which may act as a crucial support zone. The momentum oscillator RSI (14-period) is trading at ~48.40 level, reversing from the lower level. An important support level for the stock, is placed at AUD 1.14, while the key resistance level is placed at AUD 1.46.

SLX Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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