Solid State EV And Medtech Adoption Will Drive Long Term Revenue Streams

Catalysts

About Ilika

Ilika develops solid state battery technologies for miniature medtech devices and large format applications in electric vehicles and consumer equipment, using an asset light, licensing led model.

What are the underlying business or industry changes driving this perspective?

• Commercialization of Stereax through Cirtec, including wafer processing income, nonrecurring engineering work and high single digit royalty streams as medical implants and smart devices adopt miniature solid state batteries, should progressively expand revenue and improve gross margins as volumes ramp.
• Validation of Goliath cells at UKBIC using standard gigafactory scale equipment, alongside higher manufacturing yields, lowers scale up risk for licensees and supports future royalty and license fee growth as EV makers seek safer, lower cost batteries to protect long term earnings.
• Rising global adoption of electric vehicles, driven by cost parity ambitions, faster charging needs and safety concerns over conventional lithium ion, positions Ilika’s solid state platform as an enabling technology that could accelerate top line growth as OEM partnerships convert into production licenses.
• Ongoing access to sizeable nondilutive grant funding in the U.K. and Europe to support A and P2 sample development reduces cash burn, extends runway to commercialization and improves the outlook for future net margins and earnings leverage when royalty income begins to scale.
• Broader optionality from secondary markets such as industrial IoT, consumer electronics and aerospace, combined with Ilika’s right to issue additional Stereax licenses beyond Cirtec, provides multiple incremental revenue paths and potential operating margin expansion as fixed R&D is amortized over wider end markets.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ilika's revenue will grow by 116.9% annually over the next 3 years.
• Analysts are not forecasting that Ilika will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ilika's profit margin will increase from -560.6% to the average GB Electrical industry of 5.4% in 3 years.
• If Ilika's profit margin were to converge on the industry average, you could expect earnings to reach £584.6 thousand (and earnings per share of £0.0) by about December 2028, up from £-5.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 507.8x on those 2028 earnings, up from -12.6x today. This future PE is greater than the current PE for the GB Electrical industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 1.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long commercialization road map for Goliath, with meaningful EV production not expected until close to the end of the decade, creates a long window in which competing solid state and advanced lithium ion chemistries could secure key OEM design wins first. This could limit Ilika’s eventual addressable market and constrain revenue growth and royalty scalability over the long term.
• Ilika’s asset light strategy relies on partners such as Cirtec, UKBIC and prospective gigafactory operators to execute flawlessly on scale up. Any delays, yield problems or capital deployment shortfalls at those partners would slow production ramps, push out royalty inflows and keep net margins and earnings more negative for longer.
• Grant funding and nonrecurring engineering fees currently play an important role in financing Goliath development and Stereax customization. Any tightening of U.K. or European industrial support programs or failure to renew similar schemes would increase cash burn and pressure the company’s ability to reach self funding revenue, weighing on future net margins and earnings resilience.
• The EV and medtech end markets are both highly regulated and subject to multi year approval and model cycle timelines. Slower than expected adoption of solid state solutions, changing platform priorities or delays in regulatory clearances could materially defer unit volumes, limit the pace of royalty ramp and keep operating leverage in revenue and earnings below expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £1.3 for Ilika based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be £10.7 million, earnings will come to £584.6 thousand, and it would be trading on a PE ratio of 507.8x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of £0.41, the analyst price target of £1.3 is 68.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.