To say the stock market was not affected by the latest trading statement from the battery manufacturer Ilica (LSE: IKA) is an understatement. Its share price fell nearly 40% yesterday and hit a 12-month low.
It recovered slightly in early trading Friday morning, I write, but is still down 78% from a year ago. What is behind this drop – and what should I do about it?
Low income forecasts
Ilica’s business statement contained bad news. Increasing its major commercial production Stereox The product line is now expected to take longer than planned. Accordingly, the revenue in 2024 and 2025 will be “materially less“than previously forecast.
That is alarming news. Earlier cuts to revenue forecasts suggest that the final timescale for Stereox commercialization may be longer than previously thought. As Ilika continues to burn cash, it increases the risk that liquidity will shrink and the company will try to raise cash by diluting shareholders.
The business said it expects revenue for the first half of its financial year to be at the same level as last year: £0.2m.
But while revenues are flat, losses are growing. Loss before interest, tax, depreciation and amortization is expected to come in at £4.5 million in the first half and again in the second half.
The full-year total of £9m is up on last year’s £6.4m, a big jump from the £2.3m seen in 2021. Ilika increased the production capacity of Stereox and further enhanced its development Goliath As the range of large format solid-state batteries increases, losses are increasing.
Both programs still have a lot of work to do to reach full-scale commercial production. So I see the risk of even more losses in the coming years. The firm expects to end this year with cash and cash equivalents of around £14m.
Some good news
Ilica didn’t just share bad news. The energy density of prototype Goliath cells has improved by around 80% since the start of the financial year. Ilika now expects to reach parity with lithium-ion energy density this year. Although this is behind schedule, I still see it as a positive development. I hope this will help increase the commercial proposition of these cells to customers such as electric vehicle manufacturers.
Ilica’s share price doesn’t excite me
I see promise in mouse technology. It is making progress in bringing products to market, albeit slower than previously expected.
If things go well, the current share price could become a bargain. But I am not tempted to add the company to my portfolio. The concern I have is not about the potential rewards, but the risks involved. As the latest trading statement showed, Ilica is burning through cash while lowering expectations on commercialization. That doesn’t suit my risk appetite.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The views expressed on the companies mentioned in this article are the opinions of the writers and therefore may differ from the official recommendations we make on our subscription services such as ShareAdvisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering diverse insights makes us better investors.
Motley Fool UK 2022