13 May 2022

Spotlight on Surface Transforms plc (SCE)

Written by Chris Stebbings and Megan Dempster

LGB recently attended the Capital Markets Day for Surface Transforms plc (SCE), a company we have followed for over 10 years. Surface Transforms is a manufacturer of next-generation carbon-ceramic brake discs for automotive applications. Compared to traditional iron discs, its patented discs are significantly lighter in weight (which is particularly important for electric vehicles), extremely durable (measures 9.5 on the Mohs scale of hardness with diamonds measuring 10), and most importantly generate very little brake dust thereby reducing air pollution. As such, this company plays well into our theme of Decarbonisation, but also in NextGen Manufacturing as it has consistently achieved product and manufacturing performance excellence.

There is currently only one competitor, the Italian auto component manufacturer Brembo, who currently supply c.96% of the market, but with a more expensive, heavier, and less durable product to SCE. SCE is working proactively on its expansion of capacity from £20m to £50m of annual sales, which should rise to £75m with more capex. This expansion has been crucial in winning orders, and the company is quickly gaining market share as it receives strong demand from OEMs. The current pipeline is now £180m, up from £70m in September 2021. It has particularly had success with OEM 8, who replaced their original £27.5m contract last December with a £100m contract running to 2027 . Surface Transforms is the sole supplier of breaking discs to OEM 8.

It has taken a long time for the company to get to their current positioning, as it had to go through many cycles of testing and product development with the OEMs as well as building up its complex manufacturing capacity, processes, and supply chain. However, this also means that it would take any new entrant many years to enter this market, and therefore the barriers to entry for new competition are extremely high.

Hardman & Co. estimate that the current market size of c.£350m could grow to £2.2bn+ by 2030 as the market expands beyond performance cars to more mid-tier luxury vehicles, such as electric vehicles. This is driven by falling costs, better performance as well as the product’s ESG benefits which play to the OEM’s requirements to be more fuel-efficient and improve air quality. On the back of these factors, Hardman estimate that SCE could achieve 15%-25% of this £2.2bn market. Read Hardman's full article here.

Joint broker Zeus is forecasting revenues (from existing OEMs only) rising from £2.4m in 2021, to £14m for this year, to £20m in 2023, £30m in 2024 and £38m in 2025. The company should be profitable this year with PBT rising from £26k for 2022 to £8.6m in 2025.

Zeus have released a target price of 110p – the shares currently trade around 50p. The next few years should be very interesting.


If you are interested in becoming a client of LGB please get in touch for more information. Furthermore, we continue to work with companies in the Digitisation, Decarbonisation, Future of Healthcare and New Age Consumer sectors. We would be pleased to hear about compelling companies with validated business models in this space.

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