Ilika: Getting Closer To Show Time (OTCMKTS:ILIKF)

U.K. solid state battery company Ilika (OTCQX:ILIKF) has been on a downwards trend, losing two thirds of its value in the past year. The company’s lack of proven ability to commercialise means I retain a Sell rating.

But I also recognise that, if the risks are acceptable, now might be as good a time as any to invest. The coming one to two years may be transformative in terms of proving the commercial potential for the company, and the share price has tumbled meaning the whole company is now valued at less than £100m.

Business Performance Remains Weak

This month the company published its annual results.

The company did not present a profit and loss account (as it is permitted to do by dint of its size) but said that its loss was £390,600, only a few thousand pounds larger than last year. For a publicly listed company, though, that is not very helpful when it comes to analysis.

Turnover was £0.5m, less than a quarter of what it had been the prior year. The loss per share rose 84% from 2.53p to 4.65p. The company’s cash, cash equivalents and bank deposits stood at £23.4m at year end. But it is worth noting that Ilika had raised c.£25m through a combination of an equity placing, a retail offer and an open offer in July. So the cash on hand now basically equates to what was raised last Summer.

At face value, I would say those results look disastrous from a business perspective. But the company remains (albeit more than a decade after listing) at a startup stage. Of the company’s two key projects, the Stereax production line is in place with commercial production currently forecast by the company to begin next year and work is ongoing on Goliath.

It plans to spend £5m on increasing the level of automation of the Goliath pilot line (which sounds like a lot to me for that purpose) and also had this to say on Goliath in its annual results,

Following Goliath reaching manufacturing readiness in 2023, Ilika anticipates implementing a scale-up to mega-factory scale in order to support the initial stages of commercial roll-out of a small portfolio of electric hyper and super car models. Additional financing would be required to realise this mega-factory implementation, with potential sources of financing including additional government grant funding, equity financing and investment from strategic partners.

Source: company final results (“Outlook” section)

In a sense then, I feel the coming couple of years may be make or break for the investment case in Ilika. On one hand, the business performance remains weak and is getting worse. On the other hand, the company is on the cusp of commercialising Stereax and clearly thinks Goliath could be about to go somewhere.

What Does it all Mean?

One of the challenges with valuing Ilika has consistently been that it is and always has been the promise of jam tomorrow.

Ilika bulls point to the expected future explosion of demand for solid state batteries, and the company’s strong technology in that area. Given that, when it gets to commercialisation, could the company suddenly see its revenues expand exponentially? Even if profits do not follow in short order, a surge in sales could make the commercial model more viable more viable in the long term.

I do think commercialisation could be a huge step and, while it may go slowly at first as it often does, could suddenly lift sales dramatically. If that happens – and there are clearly reasons for optimism that it may, with the company’s structured approach to building up its production capabilities, strong technology, and the likelihood of growing customer demand – then the company could see its share price explode. As commenter White shadow commented after my last Ilika article, “If they get it together with their large scale Goliath EV SS battery line the sky is the limit.“

In that sense, if ever there is a moment for Ilika from an investment perspective, I do think it could be now. The shares are beaten down, while the opportunity for dramatic growth (or not) should be more obvious in the coming one to two years, as the company’s production capacity ramps up.

Valuation Remains Challenging

My last piece on the name, Ilika: Increasingly Hard To Value, was in February and took the same bearish stance that has consistently characterised my Ilika coverage. Since then, the shares have lost 56% of their value.

That sounds like a big drop – it is – and may raise the question of whether there is now value to be had here. The company now commands a valuation of £87m.

Valuing Ilika depends on making assumptions about how well it can commercialise at least one of its products, and I think that continues to be very challenging to do. The current capitalisation looks cheap if the product comes good. But the risk profile remains a big concern to me – the company’s ability to commercialise remains unproven. That risk profile is why I would not buy Ilika shares at the moment. But if I was happy with the risk, I would consider now as the perfect time to make a move on the shares, thanks to the share price fall and concrete progress towards commercialisation.