August is the season for H1-reports. For most companies in my portfolio the reports are no-news-events. The most interesting events are mainly non-financial. Companies always communicate these in press releases whenever they occur.
Often the impact of reports on share prices are marginal. Personally, my focus is on how the company describes its development. Consequently, I spend little time on numbers and most on words. Of course, turnover moves into focus as the company progresses and their market penetration starts. Later on, margins and profits moves into focus.
This week reports came from Nexam Chemicals and Fortnox. Fortnox is the most mature company in the portfolio at present – and the only company paying dividends. Nexam is still in a commercialization phase, aiming to penetrate the market.
In spring, Norwegian based Visma made a bid for Fortnox at 24 SEK per share. Visma cancelled their bid on June 28th. Shortly after Visma gave up, the share price dropped heavily. In the days following the press release, the price dropped to 15-16 SEK from a 22-23 SEK level – close to the bidding price of 24 SEK. Gradually the price then moved up to app. 19 SEK by the late part of July. Until the report came, that is. Friday the price was 22.50 SEK, which is above the price the last day before Visma cancelled their bid. In other words, the Fortnox share has risen 47 % since June 28th.
What made the share rise, then? First of all the report showed performance above expectations in both top and bottom line. Sales grew 52.9 % in Q2 and result after tax went up 68 %. For the first six months, sales were up 47.9 % and the after-tax result were up 86 %. In Q2, margins were 21 % (16 % in 2015) and H1-margins were 19.8 % (13 %). Secondly, the rise in turnover and shows that Fortnox is able to grow both in respect of new users and in adding new services hence raising the turnover on each user. The turnover per user went from 103 to 120 SEK according to Remiums analysis of the report.
During the bidding period Fortnox have added new services to their offer and made further partnerships and integrations adding value to their own services. Some of the investors, writing on various forums are themselves users of Fortnox’s services and are happy about the layout user-friendly environment.
By now Fortnox is up 34.7 % in 2016.
The report from Nexam Chemical gave the opposite effect on share price. Start-August the share went from 10.5-level to 11.5-level. It seems that the report pushed the price back towards the 10.5-level again. In this case, it probably tells more of the investors than of the report. Personally, I find it slightly unfair, since the report was OK at this point in the company’s road to market.
Sales in Q2 was 4.2 MSEK (0.7 MSEK in Q2-2015) and H1 was 5.0 MSEK (1.1 MSEK). The burn rate was 7.7 MSEK (6.7 MSEK last year). Cash position is strong after the private placement in March. At present, the company holds 147 MSEK in cash. With the current burn rate, it can keep the company afloat for almost 5 more years with sales at the present level. A highly unlikely scenario. The high level of cash therefore gives indications of a planned acquisition, which the CEO also addressed at the teleconference after the publication of the report.
Nexam focuses on three areas: Polyethylene pipes, polyester foam (including PET), and high-performance plastics. I took the above illustration form the CEO-presentation and it shows the current development in each focus area. Compared to a similar presentation in March, progress are on the areas of polyester foam (‘first costumer’ where yellow in March) and high-performance plastics (had only 1. costumer in the March-presentation). According to the CEO, the company will find a new focus area/application when they reach the target of five regular customers in one area. This could very well be this autumn.
I still hold it possible that Nexam will be one of the best performing shares in 2016, but up until now, the share is down 13.6 % this year.
Upcoming report – Dignitana
On Thursday 25th, the most interesting report this August will arrive. The report from Dignitana. At present the share price seems to have settled somewhere just below 20 SEK. The report, I hope, will give investors a more firm picture of how much turnover the FDA approval will generate in the future.
The last update at the end of July, the number for hospitals and clinics using the DigniCap system were 32.
In spring, the company made both a private and a public (oversubscribed) share issue totalling 52.5 MSEK, so cash is available for expansion and investing in the market.
The target for 2016 is 100 orders. It is not disclosed how many system each of the 32 current hospitals have bought, but if they have on average bought two, target is within reach. Each system will generate 600-1000 USD per month in lease and 200-350 USD per treatment. With one treatment per day the monthly turnover will 4,600-7,400 USD per system (38,180-61,420 SEK). Assuming a low-end turnover of 40,000 SEK per month and 100 systems in operation, the monthly turnover will be app. 4 MSEK – In comparison to the three-month 1.1 MSEK turnover in Q1.
The Dignitana share is down 7.2 % in 2016.