Overview
Iofina Plc (IOF) is a London, the United Kingdom-based holding company. The company is engaged in the production and exploration of iodine, formed water and natural gas, and iodine speciality chemical derivatives. The company operates in the United Kingdom and in the United States. The company is differentiated in two segments: Iodine and Iodine Derivatives, and Montana.

Recent News
On 13^th August 2019,Iofina Plc announced the launch and incorporation of its subsidiary IofinaEX Global Inc. The subsidiary will focus on the production of products derived from hemp in the Caribbean and Central America and will be exported internationally and to the United States.

Iofina will announce its interim results on 30^th September 2019.

Financial Highlights – Financial Year 2018(US$)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2018, the company’s reported revenue surged by 15 per cent to $24 million as compared with the financial year 2017 of $20.8 million. The company’s gross profit rose by $1.4 million to $6.3 million, due to a surge in iodine prices with an increase in volume sold. EBITDA climbed by $1.2 million or 89 per cent to $2.6 million against the $1.4 million in FY17. Operating profit stood at $1.1 million as compared to an operating loss of $0.7 million in FY17. A revaluation credit of $3.2 million has been recognised in respect of share conversion rights relating to convertible notes. Loss before tax declined from $9.8 million in FY17 to $1.4 million in FY18. The company’s loss for the period stood at $1.14 million in FY18 versus a loss of $9.7 million in FY17. Cash balances surged to $4.5 million as compared with the previous year data. Capital investment stood at $0.9 million, a decrease from the prior year data. Debt balances totalling $25.6 million have been refinanced in March 2019.

Share Price Performance

Daily Chart as at 12^th September 19, before the market close (Source: Thomson Reuters)

On 12^th September 2019, Iofina Plc shares were trading at GBX 29.80 at the time of writing before the market close (at 9:18 AM GMT), down by 0.33 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 33.28/GBX 9.88. The group’s stock is reflecting higher volatility as against the benchmark index based on the company’s beta of 1.68.

Valuation Methodology

*Peers: I-Tech AB, Treatt Plc, Victrex Plc, Johnson Matthey Plc and Elementis Plc.

Conclusion
Although the company’s revenue had increased for the financial year 2018. The company’s profitability had also improved but remained in the negative zone for the period. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. 

The company is looking forward to expand in the US market with the launch of subsidiary company. The company had reduced production cost of iodine, which resulted in the improved performance at operational level.
 
Presently, the company is trading near the 52-week High, raising doubts at its upside potential at the current price level. The company’s operations, like its peers, are impacted by the uncertainty created due to ongoing Brexit as it negatively impacts the company’s supply chain. The geopolitical and economic uncertainties in the United Kingdom as well as abroad has caused significant volatility in the market.
The company witnessed wide fluctuations in the iodine price in the international market and expect the same in the coming future, which might have an adverse effect on the company’s financial performance. The company’s chemical business has a limited number of customers, and any loss in the major customers will harm the company’s business.

The company’s P/E multiple is significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the headwinds and the valuation methodology as done above, we have given a “Sell” recommendation at the closing price of GBX 29.90 (as on 11^th September 2019), based on 34.60x NTM Price/Earnings multiple (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.81134 GBP.
*The Sell recommendation is also valid for the current price as covered in the report (as on 12 September 2019).

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