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2021 in 3D…

Season greetings from the Sharenet team and myself. Well wishes to all in these challenging times and fingers crossed humanity finds its way back to the path of health and happiness and prosperity.

Through all the trials and tribulations which 2020 brought to us all, it’s pretty amazing living through the fastest technological advancements humanity has ever seen. We have essentially fast forwarded Business to Business (B2B) enterprises at warp speed. I can name a handful of amazing innovations or disruptive sectors that have literally evolved over the last 12-24 month period. A more recent discussion I read, highlighted the innovation of Tele-doc virtual healthcare services, which is essentially the use of online screening and diagnosis which saves each patient time, money and hassle. Patients are now sitting literally in the comfort of their homes and being connected to all the relevant parties including Doctors, the Insurance Department and a Pharmacy that delivers script medication to your door. What would normally take a total of 2 to 4 hours, now takes 20-40 mins including drug delivery. This got me thinking more and more over December with the US and Europe going into Covid-19 lock downs, what if you needed certain things built and delivered and time was of the essence ? The reality is we are having massive disruptions across many segments of business but most notably in the Industrial and Medical segments. These sectors require innovation and historically speaking – humans to produce specific items. The solution to pandemic type disruption which is starting to gain massive traction is 3D printing. These new age machines are now entering segments including Automation, Microchip technology and Tissue replication. I’ve taken some time to read through three listed companies acting in unique segments within 3D printing sector, these are still very young companies and thus are regarded as ” highly speculative” plays. The companies included in this write up include: Desktop Metal ( formerly Trine via SPAC), Cellink AB and Nano DimensionLtd.

NANO DIMENSION LTD (Nasdaq: NNDM):
is an Israeli based Additive Electronics provider active in the technology sector. With its 3D technology for printed electronics, the company targets the growing demand for electronic devices that require sophisticated features and rely on encapsulated sensors, antennas and Printed Circuit Boards (PCB).

PCB’s jet printer system is an inkjet deposition tool for printing multi-layer circuit boards at home or office. It uses hardware, software, print-head management and nano-chemistry for research and Development, prototyping and custom manufacturing projects. The company targets a range of industry sectors such as consumer electronics, medical devices and defence, aerospace, automotive, Internet of things and Telecom.

NNDM is one of the most interesting plays in the “Additive Manufacturing (AM) industry”. The company has carved out a unique space in the 3D printing space by focusing on 3D printed electronics. While the PCB segment is relatively small subset of 3D printing at present, it has the potential to grow rapidly.

The industry has seen some slow failures in the likes of 3D systems (however this month alone saw the share up 200%) and Stratasy’s in recent years, it starting to feel like the industry is now ready for prime time. In essence COVID-19 has only accelerated the demand for 3D printing as the downsides of a global supply chain have been felt far and wide. Certain industries are now on the brink of closing and thus create massive backlogs in production. NNDM is at the forefront of a promising 3D printing electronics segment. The PCB market is around $60bn (NNDM current mkt cap is $1,22bn), which means theres huge growth potential for NNDM to forge forward to gain total addressable market share.

Looking forward, if NNDM can gain even a small foothold in this growing industry the company will have an even brighter future. NNDM is a strong first mover, with the company estimating that it is roughly 2 years ahead of it nearest competitors thus making them industry leaders.

The company is still in the early revenue cycle with Q3 revenue of around $480 000 the company is in a uniquely advantageous position to expand its dominance.

Looking into some of the potential risks in this business, its clear to note the company has only sold 60 units (50 in 2019) of its flagship Dragonfly system so far. Moreover, even if 3D printed PCBs are the technology of the future, it may take a while for the industry to transition its infrastructure away from 2D PCBs to 3D PCBs. Another key risk is that many of these type companies are in the R&D phase and continue to burn cash, thus its expected the company will be raising cash for future growth meaning dilution. These Niche type businesses however have the potential to disrupt the electronics industry so the risks here might be worth the reward over time. The company still boosts a market cap over $1.3bn while the estimated Global Market Value (GMV) is set to be $30-50bn in the coming 5 years. This is definitely one to watch in 2021 and beyond.

Our next company was made available to me by a fellow Investor, Trevor Muchedzi.

CELLINK – AB (STO-CLNK-B):
Cellink Life Sciences develops and designs bio-printing technologies that enable researchers to 3D print organs and tissue for applications primarily in pharmaceutical to cosmetic industries worldwide. The uniqueness of this company is evident, when you want to develop a drug you need to go through pre-clinical trials where there are up to several phases. This becomes very costly to big Pharma with success rates being very slim. Testing on 3D printed life tissue lowers these costs significantly and thus raises the chance of success, thus maximizing the opportunity cost factor. What makes it even more niche is that their printers also give researchers the possibility to print diseased tissue, like cancer cells that can be experimented on. They are confident that in the future  there is also a possibility of being able to print functioning human organs. This is an amazing statement, currently there is a 3m waiting list for human organs most of which can only be replaced once another human becomes diseased.

According to Verified Market research, the 3D Bio-printing market or the Total Addressable Market (TAM) is expected to grow to $4735bn by 2027 and currently sits around $820bn. Cellinks Business model was pretty simple, move from 3D bio printers that used to cost several hundred thousand dollars and rather create the most effective bio-printer in he world and by so doing bringing the technology to the masses and democratizing it. The company looked beyond the simple one off sale per consumer and have moved to consumables, thus creating recurring revenue. The solution, make the buyers keep buying the bioink or in the old sense the selling of toner for your office printer. The success to date has allowed the company to operate in 60 countries and over 1800 labs. The customer count includes top universities and major pharmaceutical companies. Cellink have been on the hunt for growth and partnerships, having made 3 acquisitions – Scienion, Dispendix and Cytena. These acquisitions have allowed them to move into the space of liquid handling and precision dispensing. The process of 3D printing is to say the least fairly complex. Once you have collected human cells, you have to create an environment where the cells can reproduce, and then dispense those into the printer. The above mentioned acquisitions have given Cellink a presence in the entire workflow, simply put they now have made their business vertically integrated. Cellink have definitely made it clear they are on the hunt for new acquisitions and new opportunities, what really strengthens my belief in the companies direction and focus is the review of the Capital Structure. The current CEO and CTO themselves own a combined 42%, thus they are backing themselves to deliver the goods. This close ownership however can also deter big institutional Investors from getting involved, due to liquidity and overall independence in the decision making process. It must be said however that the management team is very competent and boost years and years of experience.

To date the company has been achieving sales growth of roughly 25% p.a or better. (see first slide). The company continues to grow and has seen a strong outperformance vs the S&P Index over recent years. Management continue to spend on R&D, with margins being pretty low (roughly 7%) and steady there seems to be scope for improvement there. With R&D comes dilution, the company has already gone to market twice already and the number of outstanding shares has risen by 21%. This was used primarily for the 3 acquisitions mentioned above.

Fast growing companies like this aren’t without their risks, the demand for their products isn’t as inelastic as they’d like it to be. A downturn in the economy would likely see a shift away from funding from universities or shrinking budgets at big Pharma. Cellink operates in a fast paced area. Competition is growing and while “new products and improved research methods are continuously developed and can affect the companies competitiveness”. The companies technology is smart and the company holds hundreds of patents. A deeper dive into the companies financials will likely deter the most ardent value investor thus its clear this is a highly speculative with high growth opportunities. If management keep executing then this company is set for great things in my opinion.

Our last focus based company was in fact the first 3D company that got my attention.

DESKTOP METAL (NYSE: DM):
Is a company that originally traded under the SPAC name Trine. The company was funded in part by Chamath Palihapitiya, CEO of Social Capital who according to reports turned $200m into $2bn in 2020 through top notch investing in hyper growth stocks set to disrupt. Enough about that, so what is Desktop Metal and what do they do? In short Desktop Metal makes advanced manufacturing machines for use across manufacturing machines for use across manufacturing supply chains, from rapid prototyping to mass-scale, factory floor production. Many have touted DM as the markets best pure-play on the 3D printing rebirth.

Of interest ARK have just created a ETF called PRNT, and as of 2 days ago the fund has yet to buy DM. Needless to say ETF buying could create significant demand for stock. This past week saw CNBC interview Bill Miller – The founder of Miller Value Partners who called DM the future of 3D” citing the share price could run 10 times higher than current. lastly the company has investor presentations on the 11th and 16th of January 2021. In short theres alot of potential catalysts in the short term.

DM was started in 2015 by essentially a bunch of genius MIT professors and some well respected 3D industry veterans. One stand out is Kleiner Perkins – the venture capital firm that backed Amazon and Google in their early days, which stands out as one of DM’s earliest and largest investors.
The mix of all the talent and funding meant DM has created over 120 patents and a breakthrough technological process in industrial AM called ” Single Pass jetting”.

The nuts and bolts here are complex but in layman’s terms the Additive Manufacturing (AM) machines build objects layer by layer and while the most printers have to go over a single layer multiple times before it is finished. DM’s printers are the “fastest by a long shot” in the industry thus creating a notable moat. This action means costs are lower because DM can print as many use products in one day as three- four traditional 3D printers would. It gets better, DM has secured a global distribution network of over 80 partners across 60 countries and created a SasS offering to compliment its printers ( this creates a lucrative, recurring software business model on top of its hardware AM business.

“We are at a major inflection point in the adoption of AM, and DM is leading the way in this transformation” founder and CEO Ric Fulop said in a release.
In addition to high – profile investors investors like Lux Capital and NEA , Ford Motor Company, Google Ventures and Koch Disruptive Technologies. The company has more recently struck some big name partnerships.
Ford and BMW have both seen enough promise in the companies potential to disrupt auto- making to sign as investors.

Sources: Seeking Alpha – Simple Investment Ideas, Internet related articles, Motley Fool, Businesswire.com, JavagaInvest.

Please feel free to contact our Portfolio Manager, Dylan Bradfield (dylan@sharenet.co.za) for more information on NANO DIMENSION, CELLINK and DESKTOP METAL or alternatively for more information on ETF’s which hold the above stocks.
Some of Dylan’s other trade inspirations and related articles are posted below. Please feel free to contact Dylan for more information regarding our Managed Portfolio offerings.

Detailed performance information available upon request.

NameTickerInitiatedDateExit PriceReturn
Schrondinger READ SDGR $53,90 8 Oct ’20 $62/$70/$82 51,90%
One Healthcare READ ONEM $29,87 8 Oct ’20 $33/$37 22,41%
NameTickerInitiatedDateCurrentReturn
FEAC (Now Skilz) SKLZ $12,58 21 Oct ’20 $21,63 71,94%
Bloom Energy BE $19,07 24 Nov ’20 $34,79 82,43%

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Dylan Bradfield

Portfolio Manager

Dylan joined Sharenet in 2020 to fulfil the role of Portfolio Manager for Local and Offshore client portfolio strategies after having served 13 years as a senior member on the dealing and derivatives desk at Foord Asset Management.

He studied at the University of Cape Town and completed his B.com degree in Economics and Finance, and has also completed all of the South African Institute of Financial Markets (SAIFM) Registered persons exams (RPE).
Dylan is one exam away from completing his CFA designation.