Fabless silicon chip designer and manufacturer EnSilica (LON: ENSI) was hit by a share price decline after its recent its recent full year results. That sparked buying by directors.
Executive chairman Mark Hodgkins acquired 115,000 shares at 44.1p each. He owns 666,000 shares.
Non-executive director David Tilston bought 55,000 shares at 42p each. That takes its stake to 124,000 shares.
Both men bought 10,000 shares at 45p/share in the placing in May. Three other directors also bought shares in the placing.
Business
EnSilica designs application specific integrated circuits (ASICs), which are in increasing demand in areas, such as Internet of Things, satellite communications, wearable health devices and 5G. There are four areas of focus: communications, industrial, automotive and healthcare. EnSilica can design and supply complex mixed signal ASICs that combine analogue and digital functions
Designing a new ASIC takes years. There are revenues earned in this design phase. It can take two years or more for chip supply to begin and then production is built up to its peak, so there is built in growth for many years. The supply is where the major profit will be earned.
EnSilica slipped into loss in the year to May 2024, but the long-term outlook is positive. Chip supply revenues should start to build up from this year and that will sharply boost profitability.
New contracts have been won this year and these will contribute in the future. Since the results, EnSilica has gained a contract to design and supply an ASIC for Oriole Networks, which will use it as part of developing AI that can operate much faster and use less electricity. This starts in November.
Singer forecasts a 2024-25 pre-tax profit of £2.7m, doubling to £5.5m next year. This should enable EnSilica move from net debt of £1.14m to net cash of £2.75m at the end of May 2025.
Conclusion
Last week, the share price bounced back 19% to 47p, but it is still below the level prior to the recent results. The shares are trading on nine times prospective earnings for this year, falling to six next year.
There is still some investor caution, but the balance sheet appears strong enough after the recent placing and there are good prospects for the contracts that have already been won. There are another two potential contracts that are well advanced.
There could be some risk in terms of timing of business and level of demand for the chips, but they are worth buying if a long-term perspective is taken.