OptiCept: We are discontinuing coverage

We are discontinuing our coverage of OptiCept as the company has terminated the research service agreement. Consequently, we will no longer be giving a target price (prev. SEK 5.3) or recommendation (prev. Reduce) for the stock. OptiCept is investing in the growth of its patented technology platforms based on Pulsed Electric Fields (PEF) and Vacuum Infusion (VI), which have clear customer benefits and short payback periods. Growth to a larger commercial scale has been slow in recent years, but the success in converting existing pilot projects into concrete orders has clear potential to change this in the coming years. In our view, OptiCept shareholders should pay particular attention to the company's ability to maintain its emerging momentum in FoodTech order intake, as this has a clear impact on how quickly cash flow can become positive.

Investment story relies on expectations related to long-term commercial success

OptiCept provides advanced industrial machinery that is integrated into production processes in the food and plant industries. The company's products help customers to reduce waste while improving the quality, yield and shelf life of the end product. Following an extensive R&D phase, OptiCept has successfully secured commercial agreements in several areas, particularly within FoodTech. The solid food product has already demonstrated promising commercial momentum, highlighted by a significant large order from its partner FPS. If sales to end users prove successful and orders become regular, this could accelerate growth and potentially lead to the company becoming cash flow positive. In our view, OptiCept should have the scalability to reach good profitability once higher level of revenue is reached, particularly as the company increases its share of recurring aftermarket service revenue.

Revenue growth in FoodTech business is the key value driver but the uncertainty remains high

OptiCept is currently in a negative cash flow investment phase. In our view, the key factors for reducing the investment risk include securing sufficient capital and enhancing growth visibility, enabling more accurate forecasting of cash flow positivity. On the capital side, the company recently announced the outcome of its rights issue that will bring in approximately 56.4 MSEK, or 70% of the maximum subscription, before costs. We had anticipated the rights issue to be fully subscribed, however, we have not updated the final result of the rights issue into our estimates as we are terminating coverage. In practical terms, this means the company retains most of the additional cash runway it aimed to secure with the raise, but we can not rule out that additional financing will be needed to execute on its growth strategy. On the growth side, we see revenue growth in FoodTech as the main driver for reaching necessary scale for positive cash flows. This includes the delivery of the large-scale order from FPS, as well as converting pilot projects within liquid food to concrete orders. However, given the uncertainty of whether the company will receive larger orders regularly and at what level of profitability, the risks remain high.

We are discontinuing coverage of the stock

Our research coverage of OptiCept has been based on an equity research service agreement between Inderes and OptiCept. We will discontinue our coverage for the investor community and OptiCept’s owners as the company has terminated the agreement. We recommend that investors follow OptiCept's’ reporting and news feed. Equity research will continue to be available via Penser Access by Carnegie. All of our previously published research on OptiCept continues to be available in our service here.