Aside from looking for undervalued or recovery plays on the market, I’m also not averse to those more speculative growth opportunities.
Clearly, there is a significantly elevated risk in this area, where you invariably have a business at an early stage on the growth path that not surprisingly incurs a high level of cash burn.
Additionally, achieving adoption and a penetration of its offerings can also prove to be a major obstacle in delivery.
That said, if you can get it right with one of these often-cited jam tomorrow companies, the rewards and returns can prove to be major.
One stock which I recently bought into is Ensilica, (ENSI) an Oxford based company that is regarded as a leading fabless supplier of complex mixed signal ASIC to OEMs and system houses.
ASIC, for those that are unaware, stands for Application-Specific Integrated Circuit, that sees a custom-made chip being designed and delivered in order to perform specific tasks.
These are increasingly ever faster and more efficient, where their usage is found in embedded computers, complex industrial boards, and industrial panel PCs.
ENSI boasts world-class expertise in both designing and serving an increasing list of international customers, which spans the automotive, industrial, healthcare and communications markets, all of which are considerable in terms of monetary size.
From a personal investment perspective, I have recently embarked upon a small starter purchase here at 46p, although as I write, the shares have retraced following the release of its Interim Results.
This follows on from my catching up and speaking with Executive Chairman Mark Hodgkins last week, where I was keen to hear more on the story and the prospects ahead for the business.
At the outset, I was keen to hear as to whether ENSI would be coming back to the market for a raise, particularly in light of the company’s previous comments around the funding requirements for the business and investors concerns on this key aspect.
To this end, Hodgkins was clear that the company had no plans for another placing and following a debt refinancing being completed, provision for additional working capital has been made.
What the Chairman did add though, was that should the company secure what is deemed a very substantial contract win which would require significant working capital, then it is something that could be revisited.
Given the momentum that has been building across the business on increasing contracts, then it seems quite possible that something very big could land, but suffice to say for now, there is a firm confidence in having adequate funding for the business requirements.
Before looking at the business and the prospects ahead, it is perhaps firstly worth running over the results that have been announced, which it is fair to say disappointed the market, given the H2 bias which often spooks investors from a position of delivery.
That said, ENSI is clearly making significant progress and there are some positive takeaways in the performance that continues to provide for a vision of the delivery and upside potential ahead.
Although sales overall were down in the period at £9.3m against the previous £9.6m, the real positive was that chip supply revenue increased significantly from £1.1m to £2.9m and that is providing for a clear path to what is an evolving business.
Importantly, within the half year performance it has also been delivering on securing new contracts as have previously been announced, which has seen its association and the sealing of wins with major blue-chip clients.
The company derives its income from fees that are paid for the designing of chips that includes consultancy, along with the selling of chips or royalty’s that are derived from their manufacture.
Hodgkins told me that there are major and significant opportunities ahead for ENSI, where he also stressed that it had been a case of those major customers actually approaching and selecting the company itself, as opposed to them having to go out in search of the business.
This is a key point from an investment perspective, implying that the company, with its own IP, is held in high regard and signalling that there could be an extremely bright future ahead, as the ENSI design offerings and chip delivery are already in demand and in growing markets.
Whilst there are a number of markets providing for the growth path, Hodgkins talked of communications and healthcare as the real potential standouts for sizeable growth moving forwards.
Although to date its healthcare focus has been somewhat restricted due to investment constraints, it is an area now destined for an increased focus.
The company has already developed sensor interface IP for low-power vital signs measurement for use in healthcare chips, so this is clearly an attractive and growing market to target.
Indeed, the healthcare semiconductor market alone is valued at some $7.47bn as of last year and is projected to reach $12.82bn by 2029 representing a 11.4% CAGR.
The company, which only came to the market in 2022, has been making notable progress across the board, with revenues increasing from the £15.2m achieved in that year, to the £20m registered in 2023.
Last year saw further progress with the numbers hitting £25.3m and the expectation from Broker Allenby is that they will deliver £30m for the full year 2025.
Although there is that H2 reliance which seasoned investors will no doubt be aware can slip, the underlying runway here looks intact and extensive, where ENSI has already secured long term contracts that provide for extensive earnings visibility.
The company has also disclosed £241m of LTV in revenue terms associated with contracts already won.
The Chairman informed me that the chip design phase takes between 2 to 3 years with the supply revenues subsequently lasting from 7 to 10 years, being determined by the actual end market.
At the current time I was told that there are now 4 chips actually in production with a further 12 in the design stage which represents an increasing and active pipeline.
Going on, the Chairman explained to me that back in 2021 ENSI was approached and chosen by AST Space Mobile in order to develop an ASIC for its satellite payload providing tenfold improvement in processing bandwidth over its current solution.
That endorsement and a driving of the journey has been followed up by further significant wins, which sees Siemens and Italian telco manufacturer Siae Microelettronica amongst others, also signing ENSI up.
In the case of Siemens, the first chip moved into production fast and the orders are now being fulfilled, whilst a second Siemens design win and public announcement has been made by that major player, naming ENSI as a key supplier.
And the deal with the significant Italian player is also worth some $30m, which along with others provides for a glimpse of the potential as the company aims to achieve annual revenues of £60m in the next 3 to 5 years.
Beyond that, the goal is to be delivering yearly sales of £100m plus, as opportunities gather pace where long running contracts deliver scale and recurring revenue.
Hodgkins certainly sounds a positive enough note on the growth path for the company and expects further wins to be announced in due course, whilst also speaking of exciting potential in the area of Post-Quantum Cryptography (PQC).
He added that this could be very big for ENSI which saw the company adding IP in this area last year and which has already resulted in a licence sale to a chip maker and they are currently speaking with other potential customers.
PQC is a unique type of encryption which can resist cyber-attacks from quantum computers and ENSI is one of very few companies that are able to offer advanced cryptographic accelerators to the market as licensable hardware IP cores.
Although UK based and with a headcount fast approaching 200, the company also has operations in India and Brazil and Hodgkins sees a lot of talent with high-end engineers having been taken on board.
As for the chips that are produced, these I was told are currently undertaken from a foundry in TSMC in Taiwan, although Hodgkins added that it doesn’t have to be exclusive to that location, with other options in play.
With a market cap of £47m the Chairman here believes that the current valuation doesn’t in any way reflect the real value of the business and he pointed to his own commitment and belief in its prospects.
Back in November of last year he purchased 115k shares at 44p to take his total holding to 685k, whilst NED David Tilston whom I am aware of from SDI where he also sits on the board bought 55k.
Of course, I am well aware that there appears little in terms of representation of Institutional holders aside Amati which has been and remains a committed holder.
Hodgkins said the lack of visibility regarding a notable Institutional base is very much down to its current valuation as ENSI is firmly in the smaller cap space at present, which often doesn’t meet the criteria or remit for many funds.
That will hopefully change over time though, as if the company can deliver on its ability over the next few years, the shares should rerate and in turn, as the market cap increases, so too should it emerge onto the wider radar.
Whilst news flow has been flowing positive enough, there was some significant news delivered from the company just last week, concerning a £10.38m UK Space Agency Award that is spread over the next three years and is connected to the Low Earth Orbit (LEO) programme.
This provides a key boost to address a huge chip market to enable low-cost, earth-based user terminals required by every broadband subscriber.
The company in this instance will be specifically focused on the development of the next generation of semiconductor chips for the satellite broadband equipment.
The result of that is what appears to be another extremely significant and positive development and endorsement for the company, although I was keen to hear exactly how ENSI would fund its part, which sees a matching element of the deal.
Hodgkins referred to a previous and similar win with the European Space Agency, which saw partners very keen to come on board and as a result provide funding, he added that they are confident of a replication of that playing out with the UK programme.
Both Allenby and Singer cover the stock, but I am using the Singer forecasts for now, given they are more on the cautious side.
This sees the broker anticipating full year 2025 revenues of £28.2m with adjusted EBITDA at £4m, which in turn provides for an adjusted PBT of £1.8m.
However, it is next year which should really prove to be the inflexion point providing things go to plan, where Singer expects £38m of revenue with EBITDA of £8.5m and PBT of £5.9m with EPS are pencilled in at 8.5p.
Importantly, 2026 has been earmarked by the company as its delivering on positive cash flow, which if achieved should see the shares in a wholly different place to where they hover today.
Whilst ENSI isn’t one for widows and orphans, I believe the risk/reward is worthy of my interest and I look forward to seeing how the story here develops.
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