Over the past couple of years, many shareholders in solid state battery maker Ilika (LSE: IKA) have been disappointed by a tumbling share price. Yet since the start of 2023, the Ilika share price has more than doubled. It is up 145% this month, although still trades 58% lower than it did a year ago.
What is behind this leap – and could now be the time for me to add the firm to my portfolio?
Strong momentum
The company has announced various pieces of good news this month, which have helped boost its share price.
These include a broadened relationship with medical device maker Cirtec and grant funding for a collaborative project focussed on battery needs within the automotive industry. The firm also released its interim results, which showed a modest increase in revenue but a widened loss. The results mentioned that Ilika has received initial orders from 18 customers for its Stereax line of batteries.
Is the share price a bargain?
I think the reason the share price has soared is that things seem to be going right for Ilika. The Cirtec deal could open up sizeable future revenue streams.
The battery commercialisation programme is picking up steam, with the Stereax commercial launch expected next quarter. Ilika has long had promising technology. If it can successfully bring that to market with a profitable business model, I think the firm’s current £90m market capitalisation is a potential bargain.
Ongoing challenges
But while promising developments on the path to commercialisation help explain the recent surging Ilika share price, I see sizeable ongoing risks.
Turnover grew in the first half but remained tiny – and consisted only of money from grants, not sales revenues. That highlights the urgent need for commercialisation, in my view.
Cash burn and liquidity
The loss of £4.1m in the first half was sizeable. The company’s cash balance of £18.6m gives it enough liquidity for now, but scaling up manufacturing and sales efforts can be costly. I see a risk that the company will need to boost liquidity in future and dilute shareholders.
The slate of initial orders is a promising indicator of the commercial potential for Ilika’s offer. On top of that, I think the upcoming research on how solid state batteries might be used for the car industry could bolster Ilika’s credibility and help the firm develop its technology for commercial applications.
My move
So, am I buying? No – not yet. Ilika has been making promising moves towards scaling up manufacturing and selling its products. But there is still a long way to go. It is not yet clear what the commercial model will be. We do not know how financially attractive, or otherwise, Ilika’s economics will end up being.
Ilika might end up selling a lot of batteries at an attractive profit margin, while reaping in royalty streams from partners too. If that happens, today’s share price could be a bargain.
But it may struggle to sell enough batteries at an attractive enough price to cover its costs, let alone make money. The company has been losing millions of pounds annually for years already.
I am therefore waiting for more evidence of profitability before I consider adding Ilika to my portfolio.
