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Surface Transforms

Rapid acceleration – “game-change” announcements

05 Sep 2019 / Corporate research

Surface Transforms manufactures and sells carbon ceramic brake discs. The last three-month period of contract awards since the financial year-end has been transformational in the development of the company. It now has multi-year, multi-million, recurring income contracts from European-based global OEMs. These will support cash breakeven during 2020, moving to EBITDA-positive (post-tax credit) in fiscal 2021 and profitability in 2022. Long-term contracts collectively bring lifetime revenues of over £20m. The overwhelming significance is that this follows many years’ client-testing, and this product-endorsement opens the path to order-of-magnitude sales expansion.

  • Surface Transforms’ potential is clearly set: It is set to win a large share in a carbon ceramic market that is currently worth ca.£150m p.a. Potential is £2bn p.a. measured against the real competitor – traditional iron discs. This realistic £2bn market equates to ca.4.5m discs, which is near 10% of total European auto sales.
  • A clear road to transformative growth: Carbon ceramic brakes bring performance and safety benefits and, importantly, weigh less, last longer and (a current big issue for the customers) produce less environmentally-unfriendly brake pad dust. Indeed, they have a number of environmentally-positive attributes, supported by legislation.
  • Capacity allocation model: Surface Transforms’ current capacity is £17m sales p.a. This gives much scope for expansion, and – typically in new automotive components – as volumes rise, production efficiencies also rise and prices fall, expanding market demand further.
  • Risks: Surface Transforms has invested ahead of these firm orders, and so is well ahead in terms of capital investment. These contracts benefit from set pricing and highly predicable timings of off-take, with the start of production date set. Only one competitor exists, and no more are envisaged for many years.
  • Investment case: This is a large, growing market, 99%-supplied by one, highly-profitable player. This single supply was a most anomalous position for an auto OEM market – now Surface Transforms also supplies. June/July contract wins de-risk the business, and both open and expand the target market. The path to Surface Transforms’ discs being designed-in to many more models is clear.
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