TERA: the slide finds air

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Air quality is a matter of public concern and an increasingly important public health issue. This is part of a broader context against global warming and pollution. The whole question is how to deal with the proliferation of ideas and initiatives when the stakes are global. More prosaically, which investment vehicle is most relevant and at what price? TERA goes public to find investors interested in its approach. The stakes are high for the Paris financial centre, as this is the second introduction of the year.

Created in 2001 and still owned by its four founders, TERA is active in the field of air quality analysis.  To develop, the company uses the market under the new simplified procedure framework for bids open to the public for an amount of less than €8 million.

Most of the turnover, 96%, is currently generated by air analysis carried out in laboratories for design offices (CEBTP, Ginger…) and electronic component manufacturers (SOITEC, STMicroelectronics…). This activity represents recurring revenues. This subject is growing in importance with 30,000 analyses carried out in 2018 compared to 23,000 in 2017 and 20,000 in 2016, figures that reflect not only significant but also erratic growth.

Based on its experience, the company has developed connected measuring stations. These stations are available for rent. EBITDA would be 20%, higher than the current average EBITDA of 6.4%. However, in the absence of financial analysis and consistent forecasts, it is difficult to know whether this level of EBITDA margin is sufficient in relation to the risk inherent in this type of activity and the capital intensity. It should also be noted that, while EBITDA currently stands at €282k for 2018, REX is negative by €340k due to provisions and depreciation, while the company does not capitalise its R&D (17.5% of turnover).

The company has developed a latest-generation sensor whose essential merit is that it does not experience signal drift over time, unlike existing systems, and is able to operate in a humid environment with a level of analysis of the most harmful fine particles below one microgram per cubic meter. Tera has just signed an agreement with an automotive equipment manufacturer whose name remains confidential to adapt to the cabin filtering system. Beyond this first agreement, the company’s sensors are being tested by several manufacturers, which should allow orders to accelerate.

Finally, the company is developing digital solutions for monitoring air quality on a cloud that includes all the data collected by a network of sensors and community measurement stations. A first partnership with the city of Marseille has been concluded.

No financial analysis has been provided and it is therefore difficult to comment. Nevertheless, operating profitability is expected to deteriorate under the dual impact of R&D expenditure and the development of new activities and internationalisation. Management nevertheless believes that the operational balance will be maintained. The turnover, which today is 4.2M, should reach 7M in 2020. And the net result should be positive in 2021.

The company is seeking to raise between 6M and 6.9M with the extension clause. It should be noted that at the present time equity is negative by 1.2M, partly due to the outflow of investment funds. The net financial debt is 1.5M, the other debts being 3.9M compared to a current asset of 2.4M excluding cash.

In addition to restructuring liabilities, the company announces that it intends to devote the funds to the development of new analytical methods and digital applications, the development of the network of measuring stations, international expansion, particularly in China and the United States, and finally external growth.

If the theme of air quality is a promising one and no one can deny the importance of health, the fact remains that everything has a price. The company is valued pre-currency between 8.4 and 9.76M euros. If we retain the upper end of the range and a maximum amount of 6.9M, we arrive at an equity value of 16.66M euros. At the lower end of the range, the valuation would still be 14.4 million euros.

Based on a turnover of 4.2M, the range is 3.4 to 3.9 times. On the basis of the 7M announced as the target for 2020, between 2 and 2.65. As for the result multiple….

As well as for the size and liquidity discount, even with a free float of 35 to 40%.

Post tenebras lux. It is better to wait for the listing and publication of financial analyses to position yourself, especially since, although the theme is promising, there are a large number of stocks on the French and international markets to invest in this issue. And if speculative interest cannot be denied, at this level the premium can only be low. Unless the growth in results justifies the multiples. To be seen when the financial analyses will be available. In the immediate future, we might as well go behind the scenes with wet feet and asymmetric information.

Antoine NODET

Antoine NODET, analyste financier de formation, 30 ans de pratique des marchés financiers, conseille les entreprises dans leur stratégie financière et les aide dans leurs problématiques d'évaluation et de levée de fonds. De formation franco-américaine, il est diplômé d'intelligence économique de l'IHEDN et enseigne au CNAM et à L'ELSLCA ainsi que dans différentes formations à l'international.

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