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Sensera At The Fore In High-Tech Devices

Small Caps | Mar 28 2018

Sensera, which develops sophisticated devices, has a large application across the healthcare, industrial and military sectors and TMT Analytics initiates coverage of the stock.

-Gross margins above 60% expected as use of facilities increases over time
-Expected to become positive on operating earnings at the end of FY19
-Key acquisition of Nanotron in August 2017

 

By Eva Brocklehurst

High-tech business Sensera ((SEI)) has caught the eye of TMT Analytics. The company designs, develops and manufactures devices for medical and industrial applications. There is a large market for Sensera products in health care, automotive, military and consumer electronics and the company currently supplies the medical, industrial and military verticals.

Sensera is targeting markets that are experiencing strong growth because of fast uptake of Internet of Things (IoT) applications. These are being addressed through the company's flexible manufacturing set-up with third parties. TMT Analytics anticipates the company can drive gross margins above 60% as utilisation of its facilities increases over time.

The broker expects the company will exhibit rapid growth in the next 3-5 years and become positive on operating earnings (EBITDA) towards the end of FY19. TMT Analytics initiates coverage with a Buy rating and price target of $0.50. The stock is valued using a peer group comparison and discounted cash flow calculation.

MEMS

One strand of the company's high-tech devices, also known as micro-electromechanical systems (MEMS), include miniaturised mechanical and electro-mechanical components used to measure a wide range of variables. They set off a signal to another system in response to measurements such as pressure, vibration, acceleration and temperatures.

Ongoing miniaturisation and increasing functionality means MEMS are finding a way into more and more products. These items are used for crash-sensing in cars and in blood pressure and glucose measurement systems in medical uses.

Manufacturing MEMS uses a semi-conductor process which the company can perform 85-90% in-house at its Boston manufacturing facility in the US. The remainder is outsourced to third parties with specialised tools or capabilities.

Nanotron

The company's devices also include location-aware wireless network sensors, such as farm animal locating and collision avoidance systems for mining. Solutions assist with the maintenance of exclusion zones for the personnel moving around vehicles, which reduces fatalities from mining accidents.

Production improvements are also enabled by more efficient transportation and equipment scheduling. In the case of livestock health, tracking farm animals and combining location data with feeding data and health measurements optimises production.

Sensera gained expertise around sensor-based location with the acquisition of Germany's Nanotron Technologies in August 2017. Nanotron developed and patented several technologies which focus on accurately locating radio frequency identification (RFID) tags through pulse ranging and measuring differences in signal arrival times at different receivers.

Nanotron's system designs are proprietary, while all chip manufacturing and system assembly is done through third parties. This outsourced manufacturing model allows for limited capital expenditure, while the company has access to first-class production facilities. Nanotron uses both Global Foundries and STMicro, a French manufacturer, to produce various chip sets and anchors are manufactured by Prettl in Germany.

TMT analytics notes, while operating margins for outsourced models are typically lower compared to fully integrated production models, Nanotron does not have the scale required to run its own anchor production and assembly operations. This could change as revenues grow and proprietary assembly starts to make economic sense.

The broker suggests this stage could be realised with revenue above US$10m. Chip manufacture is likely to be always outsourced because of the large scale required to run a fabricator economically.

The company reaffirmed revenue guidance recently for FY18 of US$6.25-7.25m. TMT analytics believes this signals the strong uptake expected for the MEMS business following the commercial deal that was recently achieved with Abiomed.

The broker projects FY18 revenue of US$4.35m for Nanotron and US$2.5m for the MEMS. Longer term a revenue split of 70:30 is expected between Nanotron and micro devices.

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