Revasum
BUY
Date of inclusion: 7 December 2021
Share price on inclusion in Marc & Stuart’s Top Picks: $0.58
52-week range: A$0.21 – A$0.88
Risk Level: High
Reason for inclusion: Revasum just guided FY22 revenues in a range of US$25m to US$35m
Revasum has been on our Top Picks list before
Revasum has been on Marc & Stuart’s Top Picks before and returned more than 114% for our subscribers. We were anticipating Purchase Orders from SiliconCarbide (SiC) wafer manufacturers of which one came through when we held the stock. RVS spiked above 80 cents at the time and we closed our position with a very attractive profit.
The stock has since fallen back to well below 50 cents and we’ve been keeping a close eye on it, because we like the SiC proposition a lot.
Why are we including RVS in the Top Picks again?
The company just published a presentation on the ASX website. Hidden on page 22 of that presentation is a chart in which the company is giving a revenue forecast for FY21, which ends in 3 weeks, as well as for FY22. The revenue guidance for FY22 is a range of US$25m to US$35m, compared to a revenue forecast for FY21 of US$13.3m-US$15.6m.
US$15m to US$23m of that FY22 forecast is for the new SiC polisher (6EZ) and the SiC grinder (7AF-HMG), which compares to a range of US$4.6m to US$6.5m for FY21.
In other words, tucked away in a company presentation is the message that RVS may double its revenue in the next financial year if it hits the top end of its forecast range. More importantly, RVS is essentially saying it may potentially see a quadroupling of revenues from its newly released SiC tools!
We believe it also signals that the company is extremely upbeat about winning business for the new single wafer grinder and polisher tools that it has been marketing to the SiC market, i.e. STM, Wolfspeed, Infineon, NXP etc.
The company is also expecting to be free cashflow positive in the new year.
Substantial upside from here
The company should probably have released a separate announcement about this revenue guidance. In any case, we believe that Revasum stock will be headed higher based on this guidance.
The stock gained substantially this morning. At A$0.58 per share, Revasum’s market cap is about A$62m. In A$ terms, the revenue guidance is A$35.7m to A$50m, which implies an EV/Revenue of just 1.14x at the high end of the revenue range and 1.6x at the lower end of the revenue range. At the mid point of the range the EV/Revenue multiple is 1.33x. We believe that is very attractive for an innovative chip equipment company that will be cash flow positive in the new financial year.
Using today’s revenue guidance, we see share price upside to A$0.85-1.00, which would be 46% to 72% upside, which is why we are adding RVS to Marc & Stuart’s Top Picks again.
For more background, we highly recommend the detailed report on Revasum published by Pitt Street Research here: https://www.pittstreetresearch.com/revasum
Background on Revasum
An innovator in semiconductor equipment
This US company makes equipment that is vital to the semiconductor device manufacturing process, specifically for manufacturing of Silicon Carbide (SiC) wafers that are used to manufacture SiC semiconductors, or chips. SiC chips are used in high-end applications, like power management in Electric Vehicles, solar panels and 5G.
SiC wafers needs to be properly ground and polished before they can be used to manufacture chips. Revasum’s intellectual property centres around superior and lower-cost methods for ‘Chemical Mechanical Planarisation’, which is the polishing part. Revasum’s flagship 6EZ Silicon Carbide Polisher is emerging as a start of the art tool, in part due to its ability to automate polishing across all wafer sizes. Many US semiconductor companies at the early stages of their growth are too small for Nasdaq. That is why Revasum chose ASX for its IPO in late 2018.
Why we like Revasum
There is fast-growing demand for SiC chips that go into Electric Vehicles, 5G telecommunications equipment and next-generation solar cells. The chip companies that manufacture those chips all need high-end SiC polishing equipment. That gives Revasum enormous upside should it be accepted as the best player in this billion-dollar market. We see the likes of Cree (NASDAQ: CREE), with it’s substantial market share in SiC wafer manufacturing, as being Revasum’s key future customers.
Update 22 December 2021
Reason for update: Revasum is growing the backlog for SiC tools
7 tools in the backlog, 3 for SiC
Yesterday Revasum announced it has Purchase Orders in hand for a total of 7 tools per 21 December. Of that number, 3 are for Silicon Carbide (SiC) tools. The backlog is currently worth US$8.2m, which we assume includes consumables sales and services (in addition to equipment).
The current SiC backlog implies RVS has received orders for 2 additional SiC tools following the 2 June 2021 order for 2 6EZ polishers.
FY22 revenue guidance reiterated
The company also reiterated its FY22 revenue guidance of US$25m to US$35m (FY22 starts on 1 January) and says it expects to ship between 40 and 50 tools in total in FY22 and FY23.
If we can indulge in some speculation and back of the envelop calculations, we could reason that of those 40-50 tools, about 40% may be shipped in FY22 and 60% in FY23 as the company ramps up its production capacity (and that of its outsourcing partner) in the next few years.
Based on that logic, if US$25-35m in FY22 represents ~40% of the 40-50 tools expected to ship in FY22-FY23, FY23 could potentially see revenues in the range of US$37.5m to US$52.5m. Of course, that 40% is just an assumption of the percentage of its backlog RVS could ship in FY22, but this little exercise illustrates the blue skies ahead for the company…and the stock for that matter.
With gross margins expected to go to 40% in FY22 and operating expenses below US$10m, the pathway to sustainable profitability is open, in our view.
Attractively valued
At yesterday’s closing price of A$ 0.57 the company is trading at an EV of A$56m. If RVS can achieve the midpoint of its FY22 revenue guidance (US$30m, or A$42.3m), it would imply an EV/Sales multiple of just 1.3x, which we believe is very attractive for a semiconductor equipment player at the start of a secular growth cycle (i.e. separate from the regular semiconductor cycle).
Needless to say, Revasum will remain one of Marc & Stuart’s Top Picks.
Update 20 January 2022
Reason for update: Quarterly update for Q4
Steady as she goes
In its appendix 4C, published on Tuesday, Revasum basically said that things were tracking as expected. Specifically, revenue guidance for FY22 is unchanged at US$25-35m and unit shipments for this year and next are unchanged at 40-50 tools in total.
So, things are progressing as previously indicated and based on the current share price, Revasum is trading at an EV/Revenue multiple of less than 2x (1.95x) for FY22.
In our view, this is a very attractive valuation for a company that is expected to ride the Silicon Carbide (SiC) wave that is currently only it it’s very early stages. We expect to see very strong demand for RVS’ SiC polishers and grinders for a long time to come as the world continues to move to electric vehicles at an accelerated pace.
Audi, for instance, recently indicated that it expects to only be launching EV’s from 2026 onwards, while all internal combustion engines will be out of the showrooms by 2033!
You can read RVS’ full 4C here.