So Lev continues to buy. He bought 98.8k shares ($434k) following the infamous 4E though not exactly sure when as something doesn't add up with the price/date/volume in the announcement - most likely they were purchased on the Friday 16-Aug or possibly could have been the Monday but would have been a stretch getting the volume/price.  He has followed up with a few smaller parcels before taking another sizable parcel of 33.8k shares ($150k). The 'Date of Change' appears to be going in as the market notification date whereas I assume this should be the purchase date.

More positively, It does appear he sees value at $4.4. Remember he owns ~45% of the company, and is only getting paid the way all shareholders are getting paid, hasn't sold any and is taking every opportunity to buy more.

Geoff however has been buying off-market at $6 ($270k worth)  and it was suggested elsewhere that these purchases were likely from a related party, but maybe it was from an 'angry shareholder'?

30-Aug review of Capacity vs Revenue forecast

In #Sales Upgrade I tried to reconcile the capacity forecast vs revenue forecast from the late April Sales Upgrade and Investor Presentation announcements, but settled on the capacity forecast to determine my short term outlook rather than the revenue forecast which was also given - this was a mistake.  The subsequent mid May announcement Powder Production at Capacity to August 2019 did not help my over enthusiasm.

That my short term expectations have been proven to be incorrect clearly has an impact on my valuation which is currently still set for FY20. Importantly it does make me question what else have I got wrong? What else have I completely overlooked? Much has been said of the communication style of ANO management, and interpretation of the announcements clearly needs to be done carefully.

Not going to dig much further into this, other than to conclude that I need to consider all the information more carefully, especially when something appears inconsistent and when the views of others who I respect are different to my own.

28-Apr-2019

SP: $4.19

60.34m shares and options on issue

MC: $252m

Moving to a FY20 outlook (from annual powder production capacity of 2200t / 2500t final products)

We have now had confirmation of successful expansion using new equipment and confirmation of further plans to expand capacity, as discussed in #Sales Upgrade

Given the further increase, and that it is planned for so soon, I think we can assume high utilisation of the current capacity. There is a risk the new equipment could be delayed, though perhaps this is less likely now given the experience has been gained and relationships established with suppliers etc.

FY20 powder production 1800t, say 2300t final products. 

Final product price US$28/kg, reduced by 10%

Maintain US$0.75/$A, though note that we are currently lower than that, though also assume this factors into raw material costs

Raw Materials and consumables assumption 45% of revenue

Revenue = 2300 * 28 * 0.9 / 0.75 = A$77m (+$3m Alusion)

Operating expenses $10m

PBT =  80 * 0.55 - 10 = $34m

NPAT = 34 * 0.7 =  $23.8m

Given the profitability, strong growth and proven ability to increase capacity here, I'm changing PE to 30.

Mcap = 23 * 30 = $690m

Valuation: $11.4

28-Apr-2019

SP: $4.19

60.34m shares and options on issue

MC: $252m

26-Apr Sales Upgrade announcement

Sales orders increase from $10.5m to $12.6m. 

Looks quite conservative given H1 revenue of $5.3m and 15t per week for 5 months: 15*22=330t (which doesn't really account for late 2018 revenue recognition and extra from step up in production from late Apr/1-May, bearing in mind given that revenue is recognised when the customer receives, I'm assuming June+ production won't be received in time, though if it continues to be air freighted then some of it could be). So 330t*US$28/0.75=A$12.3m (no extra tonnes for dispersions...).  This gives a total of $17.6m, significantly above the announcement.  Maybe I have assumptions wrong? (price, less than full capacity utilisation...)  Maybe they continue to be conservative.  Likely we will get one more year of R&D rebate...

New equipment successfully passed all validation processes

It's great to see that capacity expansion using new equipment has been successful, and I'm guessing they're using it already.  This allows further expansions to be planned.  Oh, and wait a minute, that's there as well.

Orders for additional equipment

Further orders have been placed for additional equipment and are expected to be operational by around October 2019.  In the investor pack, the language for weekly capacity changed from "40t in late 2019" to "in excess of 40t in late 2019", though no clear guidance given as to what the upgrade is

TK Teoh,

I don't know the full story but here's my thoughts...

• Current US production is restricted to making dispersions as per 2018 Annual Report, MD's Review.
• All production capacities that we know have been given in zinc oxide tonnes and relate to oven capacity (and precursor a couple of times).  Dispersions are the mixing of nano zinc oxide powder with other ingredients eg oils.  The other components would then be in addition to the stated capacities, and hence "final product" estimates in my #Valuation straws
• This implies (given that Brisbane is not yet up and running) that current zinc powder capacity is only based on Perth production and it has significantly Increased Production Capacity due to process improvements to 15t/week (~800t/a).  This is also consistent with the later explanation of the Increase in Operating Expenses
• Three further ovens to be installed in Brisbane  - two by May and the other in late 2019 as per Entitlement Offer Booklet and Feb2019 Investor Presentation
• The production capacity with the new ovens keeps growing due to process improvements.  The first estimate in the Apr2018 Update was that two ovens in Brisbane, in addition to continuation of production in Perth, was to give a capacity of 600t.  Now we have Perth + 3 Brisbane ovens = 2200t. 
• The ovens are I think used to convert zinc carbonate precursor to zinc oxide.  There are other stages in the process and other equipment is also required that also costs money. 
• US bead mill to be operational from May 2019 - I assume this will use zinc oxide from Perth and/or Brisbane
• No idea on NZ OEM capacity

anthill

-----Questions from #Valuation thread

Hi,

I am trying to understand the production capacity for each site. Below is my findings and estimates, if anything you know better, please assist to comment. Thank you very much.

•Before Sept 2018 is only Radium 108 and combine into Radium 112. (Assume 200 to 400ton capacity per annum)

•Sept 9th 2018, US first batch – ZinClear (Assume 400ton capacity per annum)

•Nov 2018, Oven Expect to arrive Brisbane. Assume is for Ipswich or Rocklea (assume 800tons capacity for May 2019)

•Question, then the Jan right issuance for capacity increase is for Dec 800tons, to reach 2200tons per annum? But 1mil looks more than 800tons as previously mentioned 2 ovens is for 260k, which is for 800tons.

NZ OEM? Any idea how much capacity is this?

TK Teoh

Asymmetric upside

Well run. Cost reductions – wages, directors fees, less travel, combined manufacturing facilities. Improvements like lower cost better quality precursor, revitalisation of relationship with Merck, improved product quality control

Low director fees and high director holdings resulting in strong alignment between directors and shareholders.  Lev (holds ~44%) is only getting paid by the dividends (which haven’t been any yet).

Better than $1.5m NPAT for FY18, with known cost savings to come (2 premises to 1 and lower rent), and revenue increases predicted in FY19 by conservative management.  Sales of Alusion have lifted in the last quarter (via Merck) and increase in Zinclear is expected with USA manufacturing which looks like it commenced in June (February + 4m; see vestro’s humorous but fully serious comment for a re-interpretation of this announcement).  Further increases in production capacity seem to be expected (p7)

Current market cap (fully diluted $37m) is on a PE of just over 20 for FY18 and PE of 12 for FY19 (assuming $3m NPAT). The potential market for Zinclear is big, and a big part of that is how much zinc nanoparticles can replace chemical sunscreens and what share of that we can get.

18-Mar-2019 Valuation

So, we have got to circa 800t/a powder production more quickly than expected, and with much more production capacity expansion expected for the remainder of 2019.  So I think it's time to update the valuation, bearing in mind it may take 12-24 months to play out.

I have already put some thoughts on the #Valuation and #NPAT projection straws

New annual powder production capacity of 2200t, say 2500t final products. 

Think my price reduction assumption previously may have been a bit aggressive given the competitor price increase, so going to take it down 10% from the US$28/kg instead

Maintain US$0.75/$A, though note that we are currently lower than that, though also assume this factors into raw material costs

Revenue = 2500 * 28 * 0.9 / 0.75 = A$84m (+$2m Alusion)

Raw Materials and consumables assumption 45% of revenue

Operating expenses $10m

PBT =  86 * 0.55 - 10 = $37.3m

NPAT = 37.3 * 0.7 = $26m

Given the profitability and growth prospects here, I don't think a PE of 20 is too demanding.

Mcap = 26 * 20 = $520m

60.34m shares and options on issue

Valuation: $8.6

Given the price run up we could easily see a significant pull back from here, so no need to get carried away.  But assuming we see the additional production come online, demand continue to exceed what we can supply and potentially further orders of ovens, then I expect to fill this out over time...

So Lev buys another 120k shares on market for $207k, following the gift from shareholders purchase effected last week. It's unclear whether this enthusiasm is due to ANO being exceptional value or being somewhat a make up purchase for the $1 for 50c he was rewarded with last week. Either way it's a decent commitment and he has been buying pretty constantly since late 2015, as can be seen on Market Index (bear in mind 10:1 consolidation late 2017). 

He holds 26.6m of the 58.1m shares on issue.

My first response to this question is that I had already flagged in my #Valuation straw that I thought "we might get close to the normalised (ex tax write on, incl tax) NPAT fcst of $10m in FY20" which was prior to the latest announcement that a step up has been made in Jan/Feb.  But it's worth having a closer look.

Importantly, we need to consider "Current profit after tax". I expect this means that zero tax has been taken out, ie it hasn't been normalised - though I'd be happy to be corrected. In any case to just project the NPAT run rate is dangerous, so let's look through some of the changes that may occur

2H demand higher than 1H due to the lead in to northern hemisphere Summer, so potentially it is a seasonal effect.  More on the demand side below

Ann Increase in Operating Expenses flagged just that.  Some of it is Perth running 24/7 so these have already been occurring in Jan/Feb.  Conservatively there is $0.15m/month extra expenses from Brisbane operations in the near term which will drop the NPAT roughly by that amount until the production is happening.  Commissioning/sorting out any issues could take weeks or months (hopefully not longer), and I assume is slated for May 1.  Capacity then increases and demand is the big question

Can we expect to keep up with the capacity increases? It is difficult to respond to this definitively, but here's some ideas.

Lev&co have been very focussed on reducing costs over the last few years.  For them to order a third oven before they even get the prior two commissioned to me means they are confident the demand is there.  They have just dropped the price (effective Jan2019) to stimulate demand and it looks like this has been timed in order to create higher demand as further capacity comes online.

The #US GRASE Proposal could well send sunscreen manufacturers scrambling to be ready for any transition.  In any case Hawaii and Key West have already decided to ban some chemicals in sunscreens from 2021.

In the previous  #Valuation straw I noted about potential latent demand due to lack of promotion of product due to capacity constraint, and also the possibility of a sharp ramp up in Europe.

$12m PBT equates to $8.4m normalised NPAT is certainly possible for FY20 and would put ANO on a normalised (ex tax write on, incl tax) FY20 forecast PE of 13.

The U.S. Food and Drug Administration has released a proposal that would update regulatory requirements for most sunscreen products in the United States.

Key section:

"The agency is issuing this proposed rule to put into effect final monograph regulations for OTC sunscreen drug products as required by the Sunscreen Innovation Act. OTC monographs establish conditions under which the FDA permits certain OTC drugs to be marketed without approved new drug applications because they are generally recognized as safe and effective (GRASE) and not misbranded. Over the last twenty years, new scientific evidence has helped to shape the FDA’s perspective on the conditions, including active ingredients and dosage forms, under which sunscreens could be considered GRASE.

In the proposed rule, the FDA makes the following proposals for sunscreens marketed without FDA-approved applications:

·         Proposes that, of the 16 currently marketed active ingredients, two ingredients – zinc oxide and titanium dioxide – are GRASE for use in sunscreens; two ingredients – PABA and trolamine salicylate – are not GRASE for use in sunscreens due to safety issues. There are 12 ingredients for which there are insufficient safety data to make a positive GRASE determination at this time."

Exactly how the rules will change is still being debated, but we can see which way it is going at this stage

05-Feb-2019 Valuation Commentary - no change to prior: $3.6

H1FY19 Zinclear revenue is +20% on H2FY18 and +103% on H1FY18.  That is some increase. Looking back at my 800t/a valuation case, we seem to be tracking nicely toward this so far. There is some info here I don't have good line of sight to so this update is just going to look at some other clues rather than trying to be more precise :)

Margins

HY raw material cost (Raw Materials / Revenue) is up (HY: 41%) vs last year (HY: 36%), however this is broadly in line with the last few years (43%, 40%, 43%), so this looks OK despite the comment about additional costs due to premium raw materials in the HY Report p1

Opex - Given the recent ann which says increase to $2.1m for 2nd half, $4m is a bit low and particularly as it doesn't include full 6 months for the new Brisbane staff. Let's say $5-6m total Opex is required to cover the existing Perth and new Brisbane staff & ops for the current expansion for a full year.  On the flip side the capacity increase is now bigger (say double the 800t used) - happy to wait a bit before pushing all that through

Demand

2H demand higher than 1H due to northern hemisphere Spring

Promotion of product has been limited due to production capacity constraint - how much latent demand is there?

Europe - customer in exclusive deal with ANO competitor to end of FY19 - this large market could expand quickly post that time (thanks vestro)

Production (/Revenue)

Perth move was done during 1H, which gives 3 extra weeks production for 2H - this extra alone is enough to get to the current 2018/9 Projection of $8.5m Zinclear Revenue ($4.1m H1 revenue * 26/23 weeks = $4.6m; 4.1 + 4.6 = 8.7 > $8.5m in the latest presentation - maybe this number was confirmed orders at the time...)

Revenue recognition - change as outlined by vestro. A rough calc on this gives $400k deferred recognition, and without deferred recognition from the prior half

Brisbane - It appears production is expected from Feb/Mar given imminent employment. I guess Brisbane capacity will be same order as Perth and possibly larger? This should mean they can actively promote the products

US - Comment in latest pack regarding installation of the new bead mill from May 2019

I'm starting to think that we might get close to the normalised (ex tax write on, incl tax) NPAT fcst of $10m in FY20.  There are a few risks to this including equipment failure, commissioning issues and demand change. Am I getting ahead of myself?

Valuation 4-Oct-2018: $3.6

Looking just at FY19 I think around $1 is a fair valuation (Forecast Operating PBT/NPAT $3m up 100% from FY18 ($1.5m), PE=20).

Advance Nanotek is making good progress toward capacity expansion of the Zinclear product to meet current and expected demand and I think it’s time to look to this to see a forward value for the company.

Demand

Zinclear revenue was up 31% for FY18 on pcp and indications are that it could be up ~50% in H1FY19, albeit first half is a smaller base. One of the strategic goals for FY19 is to “Reduce our global price for XP powder and dispersions to increase sales volumes globally”. “We now have one of the best performing powders on the market at a price which is at this point below our competitors”. In addition, “With capacity restrictions lifted, ANO will rebuild its distribution network in Europe”, a key market.

Production Capacity

Per the most recent announcement, production of dispersions in the US is inching ever closer.  The new ovens that increase Zinc processing capacity to 800t/a have been delayed a month or so and delivery is now expected in November. It also appears that ongoing improvements are being made at the Perth facilities and that additional capacity and efficiency improvements have also been identified

{Management & IP notes removed to fit inside character limit (forecast section does not have the 2500 char limit!)}

Case: 800t/a Zinc Oxide processing. Estimated revenue $38m. Assumptions:

* 800t/a Zinc Oxide processing capacity resulting in 1200t/a final products

* Estimated current sales price of US$28/kg reduced by 20% to assist with significant increase demand

* $2m/a revenue from Alusion

Revenue = 1200*28*(1-0.2)/0.75 +2 =$38m

Materials Cost = $38m * 0.5

Operating Expenses = $4m (cost reductions, efficiencies, benefits of scale)

PBT = 38 – 19 – 4 = $15m

NPAT = $10.5m (as this would be post use of prior losses)

At a PE of 20, MC = $210m, shareprice (diluted for options) = $3.6

Could muck around with predicting a timing and discounting it back but that is just noise in amongst wrong assumptions, risks and opportunities.  Just to be clear, I am not saying I expect the share price to be equal to this forecast any time soon and the share price could well go down significantly while still being on track.  That said, if can get production capacity running reliably it could happen quickly, but of course these things always take longer than expected…

Valuation 14-Jul-2018: $1.1

I think operating NPAT of $3m is somewhere near a mid expectation for FY19, and given the growth rates going on and assuming this continues a PE of 20 will be conservative. There are downside risks but currently priced for basically no growth (although there is plenty to be seen in the latest presentation).

9-Jan-2019

My thoughts on the "ANO Half Year Result 105% 210% Increase from Prior Corresponding Period" announcement (7-Jan-2019)

• NPAT of $1.25m (excluding R&D benefit, FX) is actually +210% on pcp on comparable basis (ie taking out R&D: $0.607m - $0.204m R&D = $0.403m).  This achieved despite 3 weeks lost production due to combining of Perth facilities during the half (further rent savings to come here, although minimal).
• 300% increase in capacity prior to the additional ovens being installed.  Indications are that Zinclear revenue is ~+50% on pcp and given the capacity increase I'm guessing that volume of Zinclear is up more than that, consistent with the higher volume/lower cost strategy outlined in the annual report
• Significant growth confirmed as being sales of XP Powder, which means the additional oven noted in the "Entitlement Offer Booklet" is for a third oven for Zinclear in Brisbane, which should take the capacity well over 1000T/a during CY19.  Given the urgency for the third oven it brings forward my earliest estimation to hit 800T/a production (as in my current valuation case) to as early as FY20, though I realise this is unlikely (and other assumptions pending confirmation there!) 
• The update also gives a strong indication of seasonality which will mean annual production won't be that close to installed capacity despite the additional investment in finished product (of $1m)

8-Nov-18 Chairman's Address to Shareholders (link updated)

Unfortunately I didn't go to the AGM and with the commitment it would be (and life going on) I wasn't even close…hopefully next year.  Here are my thoughts in addition to (or contrary to!) those already presented by Wini.

Alusion production increase sounds good, "potentially in line with current growth rates".  Excellent.  Is that on a % or absolute terms? (either is fine!)

Production Capacity once new ovens installed will now be 1000T powder/annum rather than 800T due to process enhancements and up from around ?200T? currently.

The capital raising is to ensure that the identified initiatives can be undertaken, which have been priced at approximately $2.5m. The capital raising is 1 for 30.  There are 56.17m shares so I guess the raising will be ~$1.6m (86c) before costs.  The additional can come from cash on hand and cash flow. These initiatives look pretty good to me

• An extra $1m in raw materials in order to meet expected sales increase in 2019.  I would suggest this would be adequate to support high sales growth given there was $1.4m in unimpaired raw material at the end of FY18, which already included an influx of inventory.
• 2 ovens we have just taken delivery of to increase capacity to 1000T/a
• Automation of dispersion line; product development; solar battery material full scale prototype testing…