OptiCept Q1’24 flash comment: Focus is on operational development

On Friday, OptiCept reported its Q1 results which was below our estimates. However, the Company's investment story is based on long-term commercial success and the company has taken important operational steps towards reaching this during the first half of 2024. Yesterday, OptiCept also communicated that the company has secured financing through loan and warrants, which, in our view, lowers the financing risk that we have been flagging. However, we will do a closer review of the financing package today. We will aslo be updating our estimates, valuation and recommendation by tomorrow.

Strong operational development despite weaker Q1 figures

OptiCept's revenue fell 33% to 3.6 MSEK, missing our 5.3 MSEK estimate. While FoodTech revenue (~3.1 MSEK) exceeded our expectations (2.5 MSEK), PlantTech revenue (~0.2 MSEK) was well below our 2.8 MSEK estimate, likely due to fewer treatments in cut flowers and slower-than-expected operational development for cuttings.

In the big picture, however, OptiCept’s investment story is based on long-term commercial success, so we do not place too much emphasis on weaker revenue development in a single quarter. Instead, we focus more on the progress of key partnerships that can help bring in large orders and later convert them into deliveries and revenue. In this regard, OptiCept has performed very well in the first half of the year. The company has made significant progress towards broader commercialization within FoodTech for solid food, securing its first large-scale order (60 MSEK) from its partner FPS. Additionally, the company is progressing towards building a partnership for its new product, OptiBoost Inside, and has announced orders within OliveCept totaling around 7 MSEK, despite a challenging olive oil market. Overall, despite weaker figures in the first quarter, the company has made important operational strides that we believe will be reflected in the coming quarters.

Higher costs than expected

OptiCept’s Q1 EBITDA and EBIT remained negative, totaling -12.2 MSEK and -17.7 MSEK, respectively. However, it is worth noting that the company managed to reduce its cost base by approximately 17% year-on-year due to cost-saving measures. While this is a positive development, the impact of the cost savings was smaller than anticipated. Combined with lower revenue, this resulted in a higher operating loss than we had expected.

Loan for 29 MSEK and warrants for up to 13 MSEK

According to the announcement, the loan, amounting to 29 MSEK, is directed towards some existing investors. Compensation to the lenders consists partly of an annual interest of 6% and partly of 4,350,000 warrants in the company. Each warrant entitles the holder to subscribe for a new share in the company at a subscription price of SEK 3.00 during the period from June 2, 2025, through June 16, 2025. These warrants can potentially provide the company with a maximum of approximately SEK 13 million before issuing costs. If fully subscribed, this would result in a dilution of approximately 8.45% based on the current number of shares. After cash from subscriptions the net dilution from warrants would be small.

The financing was largely anticipated, with the primary question being the terms under which additional funding could be secured. Our initial reaction to the news is positive. The company not only secures additional financing to strengthen its working capital to produce and deliver the large order to FPS, but it also plans to use the proceeds to repay the current expensive loan from Buntel. This means the company will lower its annual interest rate from 18% to 6%, reducing financial costs significantly and strengthening cash flow