EnSilica forecasts upgraded

Semiconductors designer EnSilica (LON: ENSI) generated more than 50% of its revenues from its design and supply division for the first time last year. Figures for the year to May 2022 were slightly better than initially expected and forecasts have been edged up.  

EnSilica joined AIM at the end of May, so these figures cover a period before it raised £6m at 50p a share. Revenues increased from £8.61m to £15.3m with design and supply’s contribution jumping from £2.82m to £8.02m. This is down to contracts starting to move from the design to supply stage. Consultancy and IP licensing operations also grew their contribution, but this contribution is likely to reduce over the coming years.

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A loss was turned into a pre-exceptional profit of £165,000. That is before R&D tax credits of £683,000. EnSilica capitalised £2.2m of development spending last year.

The semiconductors are specifically designed for a customer, which would fund the design phase and buy them from EnSilica – although manufacturing is outsourced. EnSilica has already started shipping semiconductors to an automotive customer and forecasts deliveries of 2.7 million semiconductors over the next 12 months. A major contract with an industrial customer should commence production within two years.  

There are at least eleven potential clients that range from the enquiry to specification stages. Decisions on these should be made within 12 months. It can then take two to five years to reach production.

EnSilica has taken on a group of skilled engineers based in Bristol from Blu Wireless Technologies and it will also design a semiconductor for Blu.

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The share price went to a premium in initial dealings, but it has fallen back to 49p – although that is 3.5p higher on the day. There has been limited trading in the shares since May. The higher cost base after investing in new hires means that there could be a small loss this year. This is a long-term investment, though.

Allenby forecasts a 2023-24 pre-tax profit of £582,000 rising to £3.79m the following year. Earnings would rise from 1.79p a share to 4.83p a share. That means that the shares are trading on 27 times 2023-24 prospective earnings, falling to ten the following year.

Of course, this all depends on the timing of new design deals and orders. Given that generally customers will use the EnSilica semiconductors there should be good longer-term prospects as more contracts are added.

The 2024-25 forecasts for any company are normally too optimistic, but even if this is the case the shares are attractive for an investor willing to take a long-term view.

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