Silex Systems Limited

Company Overview: Silex Systems Limited (ASX: SLX) is involved 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

SLX Rides on Acquisition Strategies & Decent Liquidity Position: The company ended FY21 on a decent note, given its significant milestones to commercialise its core SILEX technology. Another key milestone was the acquisition of SILEX uranium technology licensee, Global Laser Enrichment (GLE), in January 2021. Notably, the company strengthens its global uranium and nuclear fuel industry by buying a 51% equity stake in GLE and its joint venture partnership agreement with the worldwide uranium and nuclear fuel supplier, Cameco Corporation.

Digging into FY21 Results

• Rise in Revenues: SLX recorded revenue of $2.067 million in FY21, up a whopping 106.5% year over year, from the sale of cREO® technology. The company also incurred an accrued royalty revenue of $666,128 as at 30 June 2021.
• Decline in Losses: The company’s losses after tax in FY21 declined by 11.2% year over year and came in at $6.93 million, due to a $1.1 million rise in revenue from continuing operations.
• GLE Acquisition: The company completed the buyout of a 51% stake in GLE and Cameco, increasing its interest from 24% to 49% in early 2021. The move aids SLX to gear up its engineering and scale-up activities and build a team to gather momentum, thus, pushing ahead with the SILEX technology commercialisation program.
• Paducah Uranium Production Opportunity: The company 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 three decades, with an estimate of the long-life and low cost of production.
• Zero-Spin Silicon Production: In FY21, the company’s Zero-Spin (ZS-Si) Silicon project achieved key milestones, including the construction of a prototype test facility. Testing with the prototype facility will be performed in the coming months. Presently, the ZS-Si project seeks to scale-up to pilot commercial production by 2022-end.
• Completion of Equity Raining Program: On 27^th September 2021, the company announced placement to mobilize $33 million in addition to $7 million through Share Purchase Plan. The company expects to use the proceeds on advancing the commercial pilot presentation of the SLX uranium enrichment technology in the USA, scale-up of Zero-Spin Silicon production capacity and general working capital requirements.
• Balance Sheet Position: The company exited FY21 with a cash balance of $6.4 million, up from $1.62 million at the end of FY20. Total debt (lease liabilities) amounted to ~$0.38 million at the end of the period. As of 30 September 2021, the company had net assets of ~$51.8 million, including ~$43.5 million in cash and ~$5.8 million in IQE shares. 

The below picture depicts a decent momentum in SLX’ top-line since FY19.

Revenues Highlight; Analysis by Kalkine Group

Key Metrics: For FY21, there is an improvement in the company’s gross margin, operating margin, and net margin on a year over year basis. In the same time span, the company recorded a current ratio of 11.78x compared to the industry median figure of 2.67x.

Profitability & Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 28.04% of the total shareholdings, while the top 4 constitutes the maximum holding. Jardvan Pty. Ltd. held the maximum number of shares with a percentage holding of 14.97%, followed by Goldsworthy (Michael P. Ph.D.) holding 3.05%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis:

• 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.
• Also, the risk of potential third-party claims against SLX’s ownership of Intellectual Property, stringent laws or government regulations, and lower demand for cREO® products could adversely affect the key outcomes of numerous plans and projects commenced by SLX.
• The company is also exposed to market risk (including fair value and interest rate risk), credit risk, and liquidity risk.
• The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions.

Outlook: The company expects to complete (ZS-Si) silicon enrichment project by the close of CY22. The company looks forward to working on the restructure of GLE. It has set clear commercialisation milestones to accomplish both at GLE in North Carolina and Sydney. It also plans to move forward on developing and commercialising cREO™ program through IQE. With the completion of the GLE acquisition, the company remains focused on supporting the ramping-up of the GLE joint venture and moving ahead with the SILEX technology commercialisation program. Furthermore, the company continues to assess the possible value accretive applications of the SILEX technology beginning in the field of medical versions.

Stock Recommendation: The stock of the company went up by ~24.34 % in the past six months. Currently, the stock is trading above the average of its 52-week high and low levels of $1.97 and $0.49, respectively. Considering the decent liquidity position, higher revenue base, robust product pipeline, government approvals, geographical expansion, positive outlook in the markets for nuclear fuel, strategic deal, SILEX technology commercialisation program, technical levels mentioned below, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $1.39, down by ~0.715%, as on 22 October 2021.

Technical Commentary:

SLX's prices entered the correction phase after making a new 52-week high of AUD 1.97 in September 2021 and made a low of AUD 1.20. Prices are still sustaining above the resistance turned support level AUD 1.10 and recently started to move upward, indicating an upside direction hereon. On the weekly chart, the leading indicator RSI (14-period) is trading in positive territory at ~57.52 levels. The CMP is sustaining above the trend following indicators 21-period SMA and 50-period SMA; further supporting an uptrend.

SLX Weekly Technical Chart, Data Source: REFINITIV 

Note:  The purple color line in the chart depicts RSI (14-period), while the green color histograms at the bottom of charts represent weekly volumes. The sky-blue and red color lines show 21-Period SMA and 50-Period SMA, respectively.

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

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.