Toumaz - Technology Enhanced

http://www.toumaz.com/

Toumaz Logo

Toumaz (LSE:TMZ) is a technology based firm that is listed on the AIM market. It has operations in electronic chip technology, software in the healthcare industry and in consumer electronics. Toumaz Ltd, holds two subsidiaries; Toumaz Healthcare and Toumaz Microsystems. It has partnerships with a number of firms operating in the industry and is looking to break into key markets. Toumaz has 1.132 billion shares in issue and a market capitalisation of ~£85m. The share price currently stands at 7.50p/share.

Looking at Toumaz's charts, the share is hovering about where it is when it entered 2012 - In the first few days of the year it enjoyed a steep spike up towards 10p, before settling and making a significant rise towards 12p - a 50% rise since late December, and over 100% since early October 2012. However, near the middle of 2012, the share broke down with a lack of support just above 10p. This is likely to have been through profit taking following the double top earlier in the quarter. This set off a raft of selling as people realised that the double top would not be broken in the short-term and profits should be banked. A recovery was made back to 10p, but it failed to hold above 10p hence the selling continued where the price stands at just 7.50p/share now. Fundamentally, the selling does not match, it looks purely on technicals and banking profits. The share looks like its just about to break out of the downward wedge - any movement upwards tomorrow (Monday) would confirm this so be on the lookout. On the contrary, a steep fall on Monday would mean that the price will continue to pinch-out towards 7p.  Chart-wise Toumaz looks a buy only on a breakout.

Toumaz was admitted onto the AIM in 2005 as an investment company named Nanoscience, but this has since changed. In late 2005 Nanoscience completed a reverse takeover of a company named Toumaz technology. Through this transaction Nanoscience also gained approximately 25% of the share capital in a firm named Future Waves. In 2008 the company was renamed Toumaz Holdings Ltd and in 2009 the company acquired the remaining shares in Future Waves - after this the company was renamed Toumaz Ltd in 2010. Most notably the company has gained support and investment from Imagination Technologies (LSE:IMG). Imagination is a large UK technology firm who deals with clients including; Fujitsu, Intel, LG, Samsung, Sony etc.It has a market capitalisation of over £1.5 billion and has seen its share price rise massively over the last 5 years. Imagination has a huge network and has technologies in some of the biggest portable markets out there. These include the iPhone 4, the Samsung Galaxy smartphone range, Acer laptops along with many other known projects. The partnership of Toumaz with Imagination is a huge step towards breaking into a market with multiple barriers to entry. Toumaz is thus well positioned currently.

Toumaz has two main operations the first of which is Toumaz Healthcare. Toumaz's healthcare works mainly revolves around a product known as 'Sensium'. Sensium was granted approval for use in July 2011. Below is an excerpt of its main use:

'The Sensium™ is an ultra-low power technology platform that provides unobtrusive, continuous, wireless monitoring of vital signs for up to six days. It provides a wireless link from the patient to the hospital’s electronic information system, allowing wireless monitoring of heart rate, respiration and temperature.'

The clear advantages of Toumaz's product is its wireless capability making it a preferred choice over competitors - the patient will feel less constrained. However, the main advantage of Toumaz's product is its efficient capabilities. Compared to other market competitors, Touamz describes its product as 'A generation ahead of the market'. The device uses only 1Volt compared to the current ~1.75Volts used by other devices and sues circa 3MilliAmps compared to other competitors requirements in excess of 10Milli Amps. This is a big difference and is what makes Toumaz a preferable option. Because of this the device has a longer battery life, can use a smaller lower cost battery cell and is thus a more mobile option that will interfere less with the patient. The system works through a three-part process. There is a server, a mid-way device that picks up the signal and a disposable plaster containing the device which is fitted to the patients body. In terms of ease of use -this is amongst one of the most simple especially considering the technology is disposable - it does not matter if it gets damaged.

The device itself uses MBAN (Medical Body Area Networking) which is an underdevelopment healthcare technology. Other users of this technology are large firms such as Texas Instruments. As you probably know, this technology is not used much, hence the potential should it be rolled out to hospitals further is massive. The fact that it is also low cost is a massive benefit especially where the main healthcare sector is public such as in the UK (NHS).

'During the year [2011] Toumaz established a joint venture with CCE, a company owned by Dr Patrick Soon-Shiong, to commercialise the disposable Sensium™ plaster worldwide. The joint venture, Toumaz US, is owned 20% by Toumaz and 80% by CCE. Toumaz will sell Sensium™ chips and boards to the joint venture and receive royalty on sale of all products containing Toumaz IP.'

The technology can also far extend beyond the hospital use - it could be rolled out into the sports fitness market for tracking things such as pulse by personal trainers, and Quanta Computers has been exploring the use of the Sensium Technology in the non-inherited and inherited Diabetes market. This could be a good market for Toumaz to enter also. The technology branded under 'DIAdvisor' would allow patients suffering from Diabetes to determine when they need to inject insulin to combat high glucose rates. Insulin breaks down the glucose thus reducing blood sugar levels. The fact that this is a non-intrusive method of tracking a patients changes is particularly interesting.

Toumaz Ltd's other main focus is through Toumaz Microsystems. Toumaz Microsystems designs, develops and sells semiconductor chips and solutions for the growing embedded wireless connectivity market including home automation, healthcare, smart power, security/monitoring systems and cloud embedded systems. Toumaz has two chips that it is currently exploring and selling. These are the TELRAN TZ1053 and XENIF chips. For full details on the specifications and benefits of using these chips visit Toumaz's website URL below - it would be tedious to explain the technical jargon!

http://www.toumaz.com/page.php?page=connected_consumer

On the sales-side of Toumaz, their revenue has stalled in recent years. Revenue FY 2011 was ~£2.3m, down from £2.65m in FY 2010 and £3.96m in FY 2009. Since 2009 pre-tax losses have also increased to £7.34m. However, in FY 2012, with the expansion of their sales revenue is expected to be up at £10.90m and in FY 2013 £26.00m, massively higher than where it currently lies.
(This excludes the Frontier Silicon transaction hence actual revenues should be much higher in subsequent years).

Whilst Toumaz does not release handful's of news statements by any means, they are of significance. Due to the relatively few number of them in 2012, i'll outline both the 2011 and 2012 RNS'. You can refer to the general movements these caused by matching the months with the chart above.

The first RNS released in 2011 as the year-end trading update - I won't delve into this as its not relevant now. However, also released along with this was an announcement about the TELRAN chip which was now available for sale. Toumaz has already received its first orders for the product and will commence shipment in February. An agreement with a worldwide distributor will be concluded shortly. This will have allowed Toumaz's revenue to be continually added to.

In February 2011 Toumaz announced the introduction of a strategic investor who purchased 2.46% of the share capital at a premium to the share price. Attracting interest at a premium usually bodes well for the company's long term prospects and is a very rare occurrence. The investment was made by California Capital Equity (CCE), a company owned by Dr. Patrick Soon-Shiong who said:

“Mobile, wireless monitoring devices are the future of healthcare. The challenge is to make these devices affordable and reliable, with good ergonomics and very low energy needs. Toumaz has all these bases covered, so I am very bullish about the company's prospects, and am excited to participate with Toumaz’s strong development team."

In March 2011 Toumaz raised further funds of £1.8m at a premium to the prevailing market price, another positive feat. After this Toumaz released their FY 2010 results, but more significantly received approval for their Sensium disposable digital plaster. This was to be expected and the company noted it should be released to hospital's before year-end 2011.

The more interesting RNS though was the signing of a Joint Venture (JV) with Dr. Patrick Soon-Shiong over the Sensium plaster. The first note on this was that CCE would fund the development of the product with up to $25m - a substantial investment. This fund will continually be used to further the exposure fo the product through 2013. Under the terms CCE would gain a 80% share of it with Toumaz Healthcare receiving the remaining 20%. Toumaz would also license the use of the technology to CCE and Toumaz would gain 10% royalty of all products using the IP.

Another milestone was made in November 2011 as per the following: 'Toumaz Limited announces that it has signed a global distribution agreement with Mouser Electronics Global Partnership for Telran, its ultra-low energy wireless radio system-on-chip. Mouser Electronics, a subsidiary of TTI, Inc., is owned by Warren Buffett's Berkshire Hathaway group and is an award-winning authorized semiconductor and electronic component distributor. It specialises in the rapid introduction of new products and technologies to electronic design engineers and buyers, shipping to over 300,000 customers in 170 countries.' This development will ensure the chip has vast exposure and potentially a worldwide base of customers. Another significant development came two weeks later when Milgenco, a UK based manufacturer of telemetry and power supply technology adopted the Telran technology to track the bodily changes of troops. This effectively confirmed the range of ideas that the technology can be applied to.

However, it was the first news of 2012 that caught most investors' eyes causing the share price to rise to a 52-week high. In the release it was announced that Imagination would take a 25% stake in Toumaz Microsystems in exchange for £5m made up of cash and certain licenses to use Imagination's technology. Imagination also pledged to support Toumaz's forward development. The potential off of this deal is huge, and this was realised almost immediately - the share price rising over 15% on the news. The fact that the share price is now around the same level as before this announcement means that it currently represents a good fundamental buy-in opportunity.

In February Toumaz raised £11.2m at 8.75p/share whichw as around the current price at the time. Based on the estimated pre-tax loss for FY 2012, these funds should reduce the need for fundraising for at least 14 months - however, if they need to fund new developments such as additional acquisitions it will not suffice for that period of time.

In April Toumaz released the FY results for 2011. CEO Professor Chris Toumazou commented: 2011 was a transformational year for Toumaz, with increased commercial momentum in the health and consumer sectors and closer strategic relationships with our partners. We have formalised key partnerships and secured additional investment from international strategic partners, which will support research and development and the commercialisation of our products.  Little new news was released in the announcement.

Another milestone for the company came shortly after through a restructuring of key board members to pursue future growth. CEO Toumazou was stepping down to be an Executive Chairman, and the former executive chairman was leaving Toumaz Ltd. More interestingly, Anthony Sethill was schedules to become CEO. Prior to worknig at Toumaz, he was Managing Director of 'Consumer and mobile phone products' at Amstrad PLC, was 'Sales and marketing director for Samsung' and had roles at other firms. He was also CEO of Frontier Silicon Ltd. until December 2011. In late June the XENIF chip also secured multiple awards for its design and practicality.

Yet it was the next piece of news that took most investors by surprise. Toumaz were to acquire Frontier Silicon - Anthony Sethill's former company. Prior to delving into the details, Frontier Silicon is a fast growing firm: 'Its sales volume of DAB/DAB+ modules and chipsets set a new record for the company in Q1 2012. Sales of these products have leapt forward by almost 20% compared to the same period in 2011.' The purchase of Frontier Silicon was for ~£32m. To fund the transaction Toumaz raised £29.25m at 10.25p - 10% above the market price. Frontier should immediately start making money for Toumaz with a revenue base of £22m and R&D centres in China and the UK. Whilst the transaction was dilutive, the action may have been an astute move by the CEO as the companies can combine resources and have technologies that can interlink. Toumaz will also be provided with a strong income stream. Even more importantly, it may allow Toumaz's products to gain an easier entry to Frontier's customers who include firms such as Bose, Panasonic, LG etc. The retreat in the share price may be factoring in the dilutive nature of the acquisition, but the long term impacts appear to have been completely ignored. The transaction was completed on the 20th August.

As with a lot of biotechnology plays, they are long-term prospects and there is little exception with Toumaz, however the fact that much of Toumaz's new portfolio is not priced in represents mid-term upside also. Only one broker currently tracks Toumaz, FinnCapital, who has a target price set to 15.00p/share, exactly 100% to the upside. A long term growth share that has started positively sorting out potential funding issues.

Update (April 2013) - I have started updating the conditional share reviews. This investment was conditional on a breakout of the declining wedge that did not materialise. No Rating
Two photos courtesy of freedigitalphotos.com

2 comments:

  1. Would recommend these post to anyone

    Don't stop posting!

    ReplyDelete
  2. "Which is part of the reason why Toumaz has given Texas Instruments (TI) a distributing license for the Sensium hardware. Part of that partnership will see Toumaz and TI develop an open source, or open API type protocol to allow users to design their own method of using the monitoring device. We could see third party applications that allow us to design how we use common sensors in our homes or at work."

    Cannot remember when this was announced, but thought I would add a bit more to your mention of TI.

    ReplyDelete