Saietta Group (SED): Multi-bagger potential?

Saietta Group has been on my radar, along with Alphawave, since watching this PIWorld video with Paul Jourdan of Amati Global Investors:

In the video (35m) Paul says that Saietta is the company that he is most excited about in his fund portfolios, but also that it is one of his riskier investments. Paul also talked about Saietta in a more recent interview referenced in Maynard’s recent post about CakeBox.

I thought Saietta was worth a closer look. It listed on AIM last year so I delved into the admission document for a blog write-up:

Here’s a quick summary:

Saietta has spent the last few years developing a range of high efficiency motors for electric vehicles, designed to be mass produced at low cost, and is just starting to commercialise the results of that work. The product differentiator is that combination of high efficiency and low cost. From the admission document:

The Board believes that […] there are currently no direct competitors to Saietta’s AFT 110 or 140 motors for its target market, with no other motor having the same unique combination of attributes allowing for low-cost manufacturing with comparable performance attributes.

What is the target market that’s being referenced above? Interestingly, it’s not cars (yet). Saietta’s initial key mass market is the Asian motorcycle market. At the time of the admission document, the company’s assessment was that there is little or no competition for its target engine range in India, Asia’s largest motorcycle market:

The Directors believe there are no e-motorbikes in the equivalent of the 100-165cc band that have yet been launched, making it an ideal time for Saietta to enter the market.

Saietta’s motor could also be particularly suitable for operating in Asia’s warm climates and congested traffic because it is liquid cooled, whereas most of its competitor’s are air-cooled:

The high temperatures and low speed airflow in slow moving traffic makes cooling air-cooled motors a significant challenge.

How is a small engineering company based in Oxford with around a hundred employees going to sell millions of electric motors? Here’s the plan:

  1. Demonstrate the product’s viability by providing engineering services to integrate its motor into client’s vehicles (this is already revenue generating).
  2. Build a pilot production facility in the UK with a capacity of 100,000 units to demonstrate the suitability for low cost mass production.
  3. License the technology enabling larger clients to manufacture the motors themselves using the UK facility as a model.

Operational Progress
The planned UK production facility is due to open with partial capacity later this year, and Saietta has just secured additional production capacity by taking on an existing manufacturing facility in Sunderland, following the previously unplanned acquisition of e-Traction (a similar company to Saietta).

e-Traction was acquired for a conditional €2m from Evergrande, selling assets to alleviate its well publicised debt problems, which were likely to have been a factor in e-Traction’s revenue collapsing from €11.4m in 2019 to €1.2m in 2020.

The Sunderland facility will be partly used to service orders from a more immediate revenue stream than motors for Asian motorcycles - marine outboard (and inboard) motors for the European market where regulation is driving the rapid transition to electric powered units:

…there are over 12,000 private inland vessels in the city of Amsterdam and currently approximately 95% are powered by ICE outboard motors. These petrol and diesel outboards have been banned in Amsterdam city centre from 2025 and, as yet, there are few viable functioning products to replace them.

Saietta launched its marine motors in November 2021 under the ‘Propel’ brand, which it says have now effectively sold out for the next 12 months.

Progress on the Indian motorcycle market is being made through a joint venture with Padmini, a manufacturer and distributor of automotive parts to some of the biggest motorcycle manufacturers in the region such as Hero (6m units per year) and TVS (2.4m units per year). Prototype motorcycles fitted with Saietta motors have also been built and shipped to India for evaluation.

Revenue ramped up significantly in H121 with almost 70% generated from the provision of engineering services, increasing from £20k in H120 to £537k in H121. Revenue from motor sales increased from £36k in H120 to £258k in H121.

Summary
If Saietta can successfully execute its strategy, figures in the admission document suggest that the revenue potential could be £100m plus per annum by 2030.

There looks to be a significant amount of industry experience on the Board. The CEO, Mr Wicher Kist, is a former engineer with Cosworth and was CTO at Dutch supercar brand Spyker. The Chairman Mr Anthony Gott was formerly CEO and Chairman at Rolls Royce. The company has also attracted external backing from the aforementioned Amati Global Investors which owns 11% and from Premier Miton which owns 8%. Saietta is currently the largest holding in the Premier Miton UK Smaller Companies fund.

For the next couple of years though Saietta is going to be burning through its IPO cash as it builds its new production facilities. The admission document indicated that additional cash would be needed to fund the original spending plans, and since then there has also been unplanned spending of IPO cash on e-Traction and the additional manufacturing facility.

The automotive industry is full of big companies with big R&D budgets. Saietta’s patents may not protect it from other companies developing motors with very similar performance and cost characteristics. Another option for the big players is to simply acquire the research expertise of companies like Saietta. A recent example is the acquisition of Oxford based competitor Yasa by Mercedes-Benz. In the recent interim results investor presentation Mr Kist stated that he would like Saietta to stay independent “for as long as possible”. Perhaps it was subconscious but he ended that sentence with the word ‘please’…

Really Attractive Multi-bagger Proposition (RAMP)?
Maynard has previously suggested some rough guidelines for identifying Really Attractive Multi-bagger Propositions. Let’s see how Saietta compares:

Small: Saietta’s market cap is currently ~£160m.
Worthwhile Product: Does Saietta have something special? It has a design protected by patents, and currently few competitors with products that can match the performance and cost characteristics of its motors. Is that special enough? I think there may be a time limited window of opportunity to gain traction in the market.
Lowly Rated: The early stage of commercialisation makes Saietta difficult to value.
Business In Transition: Saietta was originally a manufacturer of high powered e-motorbikes and began the transition to low cost mass market electric motors when the current management team took over in 2017.
Not a basketcase: May need more funding, but clear operational progress is being made.
Profit turnaround: N/A
International acceptance: Very likely. Mostly potential right now.
Motivated Insider: Saietta’s biggest investor is Mr Emmanuel Clair, a non executive director with a 14.8% holding.

What Else?
Perhaps there are a couple of other criteria that we could add to the list above:

Market In Transition: The transition to electric vehicles is underway, but is only just beginning, and will create huge demand for the next several years.
Simplicity of Product: We already have ‘worthwhile product’ in the list, but maybe we could add simplicity/flexibility of product? Saietta has essentially developed one motor. It is modular so that multiple motors can be combined into a single unit, and it comes in just a few different sizes. With that very simple product range, there are multiple end applications, ranging from different types of vehicle to wind turbines.
Focused Strategy: Saietta’s motors have a potentially wide range of end applications, but the company is focussing on a few specific areas where it feels it has the best competitive advantage and opportunity to gain market share.

Could Saietta Group be a RAMP stock?

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Hi MIA,

Many thanks for the write-up. Not a company I have looked at before. But the product ‘story’ sounds appealing and the CEO’s CV backs up the notion of there being genuine potential here. Can it multi-bag if things go right?

So it’s an early stage business. But let’s say the £100m revenue potential is achieved after 10 years. Let’s also say we demand a 4-bagger over that time, equivalent to a 15% CAGR, so the market cap has to increase from £160m to £640m.

To arrive at £640m for 2032, revenue of £100m would have to convert into earnings of c£25m and the shares trade at c25x earnings. Is this scenario possible? (I don’t know)

I guess early success will depend on whether the SED-powered motorbikes can prove attractive to riders in Asia. Will there be obvious advantages to the e-bike versus traditional bikes? Will they be cheaper to buy? Or more reliable? Arguably demand may have to be influenced by Asian governments on environmental grounds. Despite all the EV development, I think 80% of new cars bought last year in the UK were not electric.

Maynard

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MIA 1,

Thanks for a really interesting post.

I am sceptical having been burned by these concept stocks in my younger days (does anyone remember NXT (flat speakers)?).

That said the electric two-wheeler market in Asia and particularly India will be huge. Ola are building a factory with 10m unit capacity. There is an interesting Indian investment website/email called Breakout Wealth, that has regular articles re Indian EV potential. E.g. Electric Vehicle Sales: Electric vehicle retail sales zoom over three-fold in FY22 - The Economic Times

As always, the nub is how differentiated and well adapted is their motor? Motors have been around for a long time and I am wary of a firm claiming a unique and wide moat. I could well be wrong and some very smart institutional investors have looked at this and invested, which suggests there is a case to be made. Do you have any insight into these motors’ USPs?

This is also against my current investment style, which has reduced losses since my younger days!

That said, I wonder if there is VC-type case for dividing a unit of investment into 4 or 5 and picking potential minnows at the start of long-term growth trends such as EVs, hydrogen, other clean energy.

MTIOC

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Hi MTIOC,

I’m also sceptical that, over the longer term, any motor will be substantially differentiated from all the others. The admission document does make the point that while electric motors have been around for a long time, they have generally not been optimised for use in vehicles:

Most electric motors have historically been designed for static applications, often connected to a mains power source which means it could be acceptable for the motors to be large, heavy and relatively inefficient.

This could allow scope for meaningful differentiation in the early phase of the transition to electric vehicles as providers try to optimise the different characteristics required for mass market adoption:

Electric motors for traction applications have space, weight, cost, efficiency, manufacturing ease and motor reliability requirements, which are all important factors to their overall viability.

The extent of Saietta’s competitive advantage may also depend on the specific target market. The admission document provides a fairly detailed competitor analysis for the Asian motorcycle market, citing the superior torque and power of the Saietta motor versus its peers. But for comparisons with the wider base of electric motor manufacturers the document is much less specific, simply stating that they are operating in different target markets:

The Directors believe that the majority of these designs have a different market focus to Saietta in that they are predominantly focused on high power and high voltage applications for commercial vehicles and prestige automobiles.

It’s worth noting that the acquisition of e-Traction moves Saietta into exactly these markets, where the environment may be more competitive.

I do like the overall market dynamics though, which should support a number of new entrants during the initial growth phase:

…the Directors believe that a significant number of successful EV powertrain producers will therefore be required to satisfy the expected future demand…

MIA

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