Overall, the report came in below our estimates both in terms of sales and EBIT. However, we would argue that on the sales level, in absolute terms, the deviation is relatively small and thus within the margin of error. We had estimated sales of SEK7.2m compared to the reported SEK5.0m. Nevertheless, today's report confirmed the previously reported deliveries of the non-silica-based-product.

Except for the loss impairment, the cost-side aligned well with our expectations, so we see no reason to make any considerable adjustments to our estimated cost base throughout 2024 at this point.

At the end of Q1, the company had SEK23.6m in cash and cash equivalents, and loans of SEK6.2m were offset in the quarter. However, the cash figure does not include all of the funds from the rights issue, as only a part had been allocated by 2024-03-31. Accordingly, another cSEK15m was added to the balance sheet in April, suggesting a current cash position of cSEK35-40m.

The company has adjusted its deal with Yunbo Technologies (from now on referred to as Alltech, which is the mother company) following customers' requests to make purchases directly from Nanologica. Accordingly, Nanologica will now handle its preparative chromatology alone, while analytical and semi-preparative chromatography will remain under the previous structure with Alltech.

Nanologica experienced a setback in production after making adjustments to a process step. The adjustment led to substantially lower output (yield) and lost product, hence the impairment loss of SEK4m. The company has since returned to the initial production setting. At this point, the company and production are not contingent on this process step. Therefore, production continues; however, additional efforts will have to be focused on here to increase the yield to improve production economics, which was the initial goal with the adjustment.

As we have previously alluded to, Nanologica has ongoing customer evaluations with large counterparts that have the potential to place significant volume orders of its product. However, owing to the nature of these evaluations, estimating quarterly timing is difficult even for the company, and as we discussed in our initial comment, we expect that the adjusted financial target is related to the timing difficulty rather than anything else. Visibility on a four-month basis is better, and the company now estimates SEK100m in annual run rate by the end of 2024.

The Asian customer is currently evaluating NLAB Siv for production, and ongoing discussions suggest this could lead to a significant partnership for Nanologica. It was in previous communication mentioned that this customer alone consumes purification media of SEK30-40m for the specific product on an annual basis. Likewise, the Asian insulin manufacturer continues to assess NLAB Saga on a production scale, with final results pending. Initial life cycle tests are promising and provided positive end-results negotiations for long-term high-volume deliveries starting in 2024 are expected.

As we expect the company to have a back-end loaded year in terms of sales related to both the ongoing NLAB Siv customer and the Asian insulin manufacturer, we adjust our estimates accordingly. We trim the 2024 sales estimate in our model by c30%.

Valuation

In this update, the following changes impact our valuation:

Our new base case amounts to SEK11 (SEK12). Our bull and bear cases come in at SEK16 (20) and SEK5 (6), respectively. Our estimates imply the share trading at EV/S multiples of 1.7x-1.1x and EV/EBIT multiples of 16.9x-6.3x for 2025e-2026e.

We expect that higher expectations for near-term sales, combined with guarantors selling off shares, have been the primary drivers of the weak share price development following the rights issue. However, the current forward-looking multiples are attractive, and we find it likely that the sales ramp-up should be evident in the coming quarterly reports, allowing the share to retake lost ground.