Kromek set to swing to profit as Siemens deal boosts sales

Kromek Group PLC (AIM:KMK) anticipates a swing to profitability for the first half of its financial year, driven by a substantial £8.2 million "enablement agreement" with Siemens Healthineers, which boosted revenue to at least £14.5 million from £3.7 million year-over-year. This deal, supplying advanced imaging components, significantly improved gross margins and is expected to result in profit before tax and positive adjusted earnings, contrasting sharply with last year's losses. The company also reported strong underlying sales growth of approximately 70% excluding the Siemens deal, and robust performance across its CBRN detection and advanced imaging divisions, leading the board to express confidence in meeting full-year market expectations for revenue growth.

Analysis

Kromek Group PLC (AIM:KMK) anticipates a significant financial turnaround, projecting a swing to profit for the first half of its financial year, a marked improvement from last year's £5.7 million pre-tax loss and £2.3 million adjusted EBITDA loss. This positive outlook is primarily driven by an "enablement agreement" with Siemens Healthineers, contributing at least £8.2 million to the forecast H1 revenue of £14.5 million, a substantial increase from £3.7 million year-over-year.

Excluding the one-off Siemens boost, underlying sales still demonstrated robust growth of approximately 70%, reaching £6.3 million. The Siemens deal, which involves supplying advanced imaging components, has been instrumental in lifting Kromek's gross margins and is expected to result in positive adjusted earnings, indicating improved operational efficiency and leverage from key strategic partnerships.

The company reported strong performance across both its chemical, biological, radiological, and nuclear (CBRN) detection business and its advanced imaging division. This broad-based growth, coupled with the strong first-half results, provides the board with confidence in meeting full-year market expectations for continued revenue growth and sustained momentum.

Key Decisions for Investors

• Investors should closely monitor Kromek's full-year results for confirmation of sustained revenue growth and margin expansion, particularly the ongoing contribution from the Siemens Healthineers agreement and underlying business segments.
• Evaluate the long-term implications of the Siemens partnership, considering its potential for recurring revenue or follow-on contracts, and assess the company's ability to replicate such strategic deals.
• Consider the stock's valuation in light of the projected profitability and strong underlying growth, weighing the current price against future earnings potential and market expectations.