Shares I looked at this week (30 June 2025)
Two liquids and a solid (literally!). All are in various states of growth. Can any of them multibag to a £100m market cap or even £1bn? (IOF, ART, SCE)
Iofina #IOF $IOF.L
This company has an interesting niche, producing iodine. You don’t often hear about iodine, but it is quite an essential chemical. Apart from being used to disinfect wounds, it is also extensively used in medical imaging. Also, it is also famous for nuclear radiation scenarios, where a derivative of it helps to protect the thyroid gland.
The company has 10 plants in the USA, and is planning to build a new plant every year. It makes iodine from brine water, a byproduct of fracking. Its 10 plants are located near fracking areas in the USA.
Majority of sales are within the USA, with the second largest region being Asia, and they have some sales to Europe and other regions too. In FY Dec24, none of their customers were more than 10% of sales, albeit a few were between 5-10%.
It is a pretty strange setup, with the Iofina HQ based in UK, but all the manufacturing and most of the sales based in the USA.
There are six key points here for me:
Big dependency on their suppliers of brine water. They have contracts for the raw material, brine water, that they need to regularly renegotiate. In FY24, their margins declined because they had to pay more for the brine water compared to past years. Also, there is an environmental risk - because of some adverse weather condition over winter, their brine water supply was reduced, affecting production. Water scarcity worries in the future might also be an emerging risk.
Dependency on the iodine spot price. On top of not having control over their input costs, they don’t have control over their sale prices either. It doesn’t look like it is possible to hedge iodine prices - at least the company doesn’t seem to do it.
They don’t seem to be one of the largest suppliers globally. Iofina has than 3% share of global production. At least that’s the answer that Perplexity AI gave me. So they could be squeezed by a glut of supply, quite easily.
The shares are just not cheap enough, yet. For a commodity share like Iofina, there is likely to be a boom and bust cycle. For a single commodity, small producer like this, one yardstick I use is adjusted FCF, adjusting out some of the expansionary capex, but not all. Here, I think they could do 3 US cents a year FCF if they stopped building new plants, and if I think a low valuation point at the bottom of the bust cycle is like 5-7x that, then that is a 11p to 15p share price. Compared to the current 24.50p. Within the past year, the price has gotten as low as 17.50p, so in a bust part of the a cycle, below 15p seems feasible.
Nuclear could drive demand for Iodine derivatives. Potassium Iodide (KI), a derivative of iodine, is distributed and ingested in tablet form during a nuclear accident, to prevent the thyroid gland from absorbing radioactive iodine. Iofina is a producer of Potassium Iodide. Every time there is a potential nuclear accident, say after Fukushima or even Russia’s invasion of Ukraine, there is consumer panic buying of KI tablets. With Nuclear power making a resurgence, there inevitably will be more accidents in the decades to come. More imminently, increased conflicts between nuclear powers or would-be nuclear powers in the world (Israel, Iran) threatens to also cause a nuclear accident.
Candidate for a USA takeover? Given that UK markets are definitely undervalued compared to US markets, I wouldn’t be surprised if a US listed company comes with a bid for Iofina. After all, this is almost a 100% US company - production is there, sales is mostly there. So would make an easy addition for a US chemical conglomerate or even an Iodine producing competitor.
In Conclusion…
Interesting share. Probably not one that I am very interested in, given some of the key risks outlined above, and the fact that the share price doesn’t seem to be at Bust Cycle levels yet. But one I’m going to keep checking back in on, and maybe a good punt if nuclear accident fears take off, leading to a big increase in demand and pricing.
Artisanal Spirits #ART $ART.L
I am not quite sure how I stumbled across this company, but when I heard there was a MelloMonday presentation, I thought why not. It does something really unique with no other listed peer. Basically, they run a whiskey membership club. Like a cross between a Diageo #DGE $DGE.L and a Naked Wines #WINE $WINE.L . Artisanal Spirits are a “producer” like Diageo, aging whiskey in casks and then bottling it for retail sale. And it is like Naked Wine in running a membership model for enthusiasts, promising interesting bottles to experience. Just whiskey instead of wine.
The MelloMonday presentation was alright. Nothing really stood out, it was a very average presentation. I couldn’t detect any hint of bullishness for the near term, which probably suggests that current trading is a bit soft? Nothing about their membership operating model really stood out as being operationally excellent, a very compelling value to the customer, or a highly profitable machine. The only “wow” point was management claiming that their c£25m of “inventory” (whiskey in casks) is actually worth £102m as valued by “independent experts”. And probably 5x that - £500m - once it is bottled, branded, and sold for “retail value”. Wowsers.
If that £102m valuation is true, then we’re looking at a 100p+ NTAV here, which compares to a current share price of 47p. Sounds like a bargain, doesn’t it?
However, when I look at the FY24 numbers, I find that Cost of Inventories Recognised as Expense, which I presume is from book value, was £6m. This was used to drive £18m of whiskey sales in the year. So that only makes it a 3x multiple from book value to retail price point? Not the 4x from book to “current independent valuation” and another 5x multiplier to “retail value” that management are claiming… one to investigate further for those interested in these shares?
Despite the membership club (The Scotch Malt Whisky Society) having been around since 1983, I was surprised to see that the company is barely profitable. £1.1m EBITDA on £23.6m revenues! FY23 was even loss-making. I can excuse a poor profit margin if the company has been growing rapidly, but here they also fail.
The membership base only grew by 4% YoY, which is a very paltry number. The key culprit was a 4% fall in the Americas, their second largest membership base. And a modest +6% growth in their largest (>60% of members) region of Europe. I don’t think we could get a better discretionary spending environment in the USA as we did in 2024; all categories from fine dining (eg $1000+ NYC omakases) to luxury travel did extremely well in the USA. In Europe, I can see why growth is anaemic, and likely to be structural going forwards. Asia was the fastest growing membership region at +12%, but it only makes up 13% of the membership base. And I’d be surprised if they can get a double digit growth in Asia (which mainly comprises Japan and China) this year, given the tariff impact on Asian economies.
The other shocker is the Retention Rate : only 71%…! This is down from 74% in FY23. In addition, average revenue per member also declined -13% YoY. These are not good recurring revenue metrics. They have to find almost a third new members every year, just to stand still. So I’m not surprised that the net base growth was only +4%.
The silver lining? They are not spending too much on customer acquisition. c£250 (commissions and marketing combined) per acquisition, compared to a £900+ gross margin earned per customer (over 3.4 years). Somewhat break-even, but again, where’s the healthy profits?
At a £65m market cap, £25.5m net debt, and £90.5m EV… what level of EBITDA do we need to make the maths work? Probably a £10m or more EBITDA? That’s a long way from the £1.1m in FY24. I can’t quite see how the company is going to get there.
There are only a few levers they can pull:
Increase the gross margin by 67% from £15m to £25m, and hold all other costs flat (unlikely).
To get that gross margin increase, they will need to sell 67% more whiskey to each member a year. This seems unlikely, especially given that spend per member per year isn’t going up!
They could also grow their membership base by 67%. But given the anaemic growth in Europe (60%+ of their base) as well as Americas, and Asia being hit by the tariff impacts, this looks unlikely too.
and this is the shocker…
So the company reported a flat revenue growth YoY, from £23.5m to £23.6m. However, all this was “engineered” by doing an “asset sale”… they sold off some whole casks of whiskey, to the tune of £4.0m worth! In the prior year, they only sold £2.7m. So really, adjusting this out, revenue actually fell by £1.2m YoY.
This means that one has to be really careful when looking at the revenue and profit growth every year, as the company is not adjusting out “asset sales” and the resulting profit from either the top line or bottom line. They can easily manipulate the top-line (and also bottom line!) by selling off casks of whiskey from their inventory…
In conclusion….
I could go on and on about some of the red flags here. Actually, I will mention one more. On the surface, it looks like there are LOTS of director buying. But they have all been tiny amounts, a couple thousand pounds here and there by the CEO, CFO, Non-Exec. The Chairman did buy a good £118k worth in an 8 month span in 2024 between 38-49p, but nothing since then. Despite the share price still in that range (and going lower than 38p too at some points). Why? Also, he probably has some serious personal wealth, having been the President & CEO of Molson Coors in the USA until 2019. So £119k is probably not a substantial part of his net wealth. However, I am impressed that someone of his stature in the drinks industry has decided to chair this small cap company. He was also responsible for taking the company public in the IPO. So some more digging there for the story might be illuminating.
Anyways, back to the conclusion - I don’t think I see enough here to give confidence that there is a healthy growth story here, and so I think the EBITDA performance is likely to be muted for the next few years. In theory, there could be some rapid growth here as they expand in Asia, but it is growing from a small base, so unlikely to make a huge impact for a few years. Meanwhile, there is the high “liquid” asset backing here, so if one is comfortable with the company’s valuation of the casks, then there’s a more than 50% discount to NTAV available at the current share price.
Surface Transforms #SCE $SCE.L
This is a share I have owned in the past, one of my all-time worst performers in percentage terms (-81% loss). Although in absolute terms it was much smaller given it was always less than 3% of my portfolio.
This company makes ceramic brake discs, and was poised to challenge the monopoly held by Brembo. Ceramic brakes are superior and mainly used in sports cars, albeit they are also useful in EVs which are heavier than normal cars.
Their end customers (OEM car manufacturers) have been eager for this new supply, to diversify away from Brembo. Surface Transforms now have some impressive long-term contracts to supply ceramic brakes for many upcoming new car models being launched.
The company then embarked on building scaled manufacturing facilities for ceramic brakes. However, this has been a massive disaster, the main reason why the share price went from 50p+ all the way down to 0.25p and now back up to 1p. They ran into issue after issue, and had to do repeated fundraisings.
To date, their manufacturing process is still not giving the right quality and yield to be profitable. They are targeting 85%+ yields; they were only getting 41% to 83% range in Q1 (Jan to Mar25). Inconsistently too; it wasn’t a steadily progression of improving yields over the weeks.
Their Trading Update for Q1 didn’t mention any reassuring statements that they had identified all the root causes. Which is worrying. They are trying to fix a problem, when they don’t know if they have the full understanding of all the issues, or the solution design.
Their FY results issued in early June had an update on operations, and it was what was omitted that was interesting:
No operational yield numbers given, despite giving them in the Q1 trading update (41-83%). This suggests they are trying to hide bad news - that there has been no progression in getting yield up, or getting more consistency.
No timelines given for when they expect to hit certain levels of yield or have all their problems fixed. You would expect so, given they have been working on this for a long, long time.
They’ve started “executing a £13.2m capital investment programme” funded by the ERDF loan. They state that this expenditure is to “enhance the manufacturing process”. However, when the loan was originally agreed, its purpose was to expand manufacturing capacity to meet the 2025-2027 requirements of all the OEM contracts they’ve signed! Now that they’re using the money to fix yields, where are they going to find money to expand production capacity to satisfy all those contractual agreements? Silence on this. In addition, the interest rate on this loan has never been declared I believe. Will the company, even at a 85%+ yield, be able to generate enough EBITDA to cover the financing costs?
They are also now heavily in-debt to their customers, having taken £11.9m of prepayments from their customers as of 31 May 2025. This figure was £8m as of early Apr25. Combined with the £13.2m loan above, their total gross debt is probably exceeding £25m at this point. Market cap is £13m, even after the 4x rise from 0.25p to 1.0p in the last two months.
In the Q1 trading update, they also said this:
“strategic discussions with certain key customers regarding longer-term arrangements are at an advanced stage”
All this suggests that further fundraising is inevitable, as they won’t have the cash to scale up the working capital, after they fix their yield problems. They will also need more debt for the capacity expansion required in 2026 and 2027, to meet the OEM contracts they have signed.
There is not a single word that gives me confidence that they have:
Identified all the problems causing the low yield
Have a well defined and low-risk solution that will get to a profitable yield
Know how much cash they need to fix it, except that they have the £13.2m loan they are drawing down to “try” solutions to fix
In conclusion…
I am puzzled by why the shares have quadrupled from 0.25p to 1.0p. Kudos to those brave enough to invest and seen this amazing gain. Maybe I’m being too pessimistic here, and their manufacturing problems aren’t as bad as it seems? However, they have been trying to fix it for almost two years now… so it seems very complex or deeply rooted. Or maybe even not fixable.
I still have faith that this could be a highly profitable, duopoly-type company in the future, so will be keeping an eye out for when they confirm they have gotten to the 85%+ yields, as well as after they sort out their balance sheet.
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From Iodine to Ceramic Brake Pads via Whiskey, there is never a dull moment as Boon takes us on an international journey in his shares report. One of the essential reads of the week.
Thanks for an interesting and educational post. It would be even better if you brought to our attention something which you conclude is worth further investigation.