Surface Transforms: New contract win and revised manufacturing strategy

Surface Transforms, carbon ceramic brakes
[shareaholic app="share_buttons" id_name="post_below_content"]

Surface Transforms plc (LON:SCE) has announced another contract win. The Group will provide discs for OEM 5, an existing customer, for an upgraded model of an ICE vehicle with start-of-production in Q1 2024e. The lifetime value of the contract is c.€5m, from 2024e to 2028e. This follows a £20m win with a new customer, OEM 10, in August. Surface Transforms has now secured over £65m of OEM contracts. Revenues for both will flow from 2024e and hence are not included in our estimates at this time.

Separately, the Group has announced its revised manufacturing strategy and factory layout to increase capacity, improve lead times on installing new equipment and reduce the environmental impact of operations. The immediate effect is to raise the 2023e factory sales capacity from £35m p.a. sales to £50m p.a., with no impact on 2022e cash requirements. We recently visited the Knowsley factory and discussed these changes and the potential for higher returns with management. Both announcements today signal that Surface is fast becoming an efficient and volume supplier of carbon ceramic brake discs. We lift our valuation to 85p from 80p, potential upside c.30%.

New OEM 5 contract – Surface Transforms has been selected as a tier one supplier of discs to its existing customer, OEM 5. All terms have been carried over from the master purchase agreement signed with this customer in mid-2019. The car is an upgrade to an existing ICE model with start of production in Q1 2024e. Discs will be fitted as an option to the front axle. The lifetime value of the contract is c.€5m spread over 5 years from 2024e to 2028e. We have discussed volumes, pricing, and projected customer take-up with management; assumptions are conservative, in our view. This win demonstrates the Group’s ability to secure repeat contracts with major OEMs. We continue to expect further contract win announcements.

Revised manufacturing strategy to reduce capex and improve efficiency – Reflecting the maturing of the Group, growing order book, and need to reduce the environmental impact of operations, a revised manufacturing strategy has been set. The objective remains to develop the Knowsley factory with sales capacity of £75m p.a. However, Surface Transforms will no longer build separate production cells but implement a more efficient plant-wide single production line. We discussed this plan in detail during our site visit in July. The Group will now purchase a smaller number of larger furnaces to support the sales capacity target of £75m p.a. In the short-term this will raise the 2023e capacity availability from £35m p.a. sales to £50m, with no impact on the 2022e cash requirement. Generally, factory build-out will be focused on a 2024e completion and not 2025e, as previously indicated. The procurement of other machine tools will now be in batches of c.£5m p.a. capacity (previously c.£15m p.a.) giving the Group shorter lead times and greater flexibility to address certain customers’ requests. Overall, during Surface’s £20m fundraise roadshow earlier in the year, the Group said it expected it would cost c.£50m of capex to provide annual factory sales capacity of £75m p.a. With these revised specifications, this total requirement is reduced to £40m p.a. Surface Transforms will also seek to reduce its projected carbon footprint using more environmentally friendly furnace technology. Further details on this revised manufacturing strategy should be provided by management in the coming months.

Share on:
Find more news, interviews, share price & company profile here for:

Surface Transforms Delivers 72% Revenue Surge on Turnaround of Manufacturing Operations

Delivering sustainable improvements in output, yield and quality. Cautiously confident this level of performance will be maintained in the second half of the year

Liverpool’s brake disc reinvention

A north Liverpool manufacturer has transformed its fortunes by uniting R&D and production in one plant, driving efficiency gains that underpin renewed growth.

Surface Transforms H1 2025 revenue up 72% as yields rise

Surface Transforms expects H1 2025 revenue of about £8.1m, up 72% year on year. Q2 yield improved to 77% from 49% in Q1. Customer advances reached £12.9m, with repayments due in H2.

Surface Transforms Carbon Discs for 430 Scuderia

Surface Transforms has engineered a revolutionary carbon ceramic disc for the Ferrari 430 Scuderia, combining continuous interwoven carbon for vastly improved durability and heat management.

Atlantic accord signals a shift in Britain’s automotive landscape

Britain’s bespoke US trade deal and new industrial strategy are setting the stage for specialised surface engineering firms to drive the next wave of automotive innovation.

The rise of carbon-ceramic systems

Advanced carbon-ceramic brakes are reshaping vehicle safety and performance, offering unrivalled heat resistance, durability and reduced unsprung mass. Surface Transforms, the UK’s sole automotive producer of carbon-ceramic discs, exemplifies this technological momentum.

Search

Search