IOFINA PLC (IOF) — Investment Research Note

Executive summary

Iofina is a vertically-integrated specialty chemicals group that produces iodine from oil & gas waste brine streams in Oklahoma using its proprietary WET® IOsorb® technology and converts it into halogen-based derivatives at its Kentucky chemical plant. Across the period covered, the trajectory has been overwhelmingly positive — eight consecutive years of record revenue, production rising from 518MT (2021) to 743MT (2025), and 2025 delivering record results (revenue +22% to $66.5m, Adjusted EBITDA +56% to $11.8m) with a net cash balance sheet. The single most important point for valuation today is the imminent step-change in production capacity: the larger-scale Permian Basin plant (170-220MT) comes online Q3 2026, taking annualised run-rate close to 1,000MT, with a credible path to 2,000MT thereafter at high incremental margins.

Fair value estimate

Methodology: Forward EV/EBITDA on FY2026E and FY2027E, anchored to USD-GBP at ~1.32.

Key assumptions:

• 2026E Adjusted EBITDA: ~$16-18m (H1 already guided to 385MT vs 305MT in H1 2025; Permian online Q3; iodine price firm above $70/kg) → ~£12-13m
• 2027E run-rate Adjusted EBITDA: ~$20-23m at >1,000MT → ~£15-17m
• Target multiple: 7-9x forward EBITDA for a sub-scale, capacity-constrained specialty chemicals producer with structural growth and a clean balance sheet
• Net cash: £4m (2025: $5.2m); rising

Fair value range: 50p – 70p per share (implied market cap £96m – £134m)

• Midpoint: ~60p / ~£115m
• Current price 45p / market cap £86.3m
• Absolute upside to midpoint: ~33% (range: +11% to +56%)

2026-04-30 final results; 2025-09-18 interim

Sector context

• ICB classification confirmed: Basic Materials / Chemicals (specialty chemicals sub-segment).
• Iofina's profile is above typical sector peers on growth and balance-sheet quality but below on scale and moat depth. Net cash positive, accelerating growth, mid-teens EBITDA margins rising toward 20%. Most specialty chemicals peers carry 2-3x net leverage.
• Direct listed peers are scarce: SQM (NYSE) and Chile's Cosayach dominate global iodine supply (~60% Chilean share). For halogen-derivatives comparison: Synthomer plc (where new NED Tim Hughes ran the iodine business), Treatt plc (UK specialty), Elementis plc (UK specialty chemicals).

Investment thesis

1. Capacity step-change at low incremental capex. The Permian Basin plant (IO#12) takes annualised production from ~750MT to ~1,000MT for ~$8-9m capex — a model the company believes is repeatable, with management explicitly guiding to "larger plants with proportionally lower capital intensity" as the basis for the next 2-4 year doubling toward 2,000MT 2026-04-30 final results.
2. Iodine pricing firm above $70/kg with structural demand tailwinds. X-ray contrast media demand grows secularly with diagnostic imaging volumes; emerging perovskite solar (Oxford PV shipments; Japan's 20GW perovskite target) and CF3I refrigerants (Honeywell R-466A) are credible incremental demand drivers — the auditor's downside sensitivity required iodine prices to fall 59-69% before EBITDA reached nil 2026-04-30 final results.
3. Fortress balance sheet funds growth without dilution. Net cash of $5.2m at FY25, $11.7m gross cash, $10m additional project facility being finalised, no dividends, eight years of operating cash flow reinvested into plant builds delivered on time and on budget 2026-04-30 final results.

Key risks

1. Brine-supply dependency on third-party O&G partners. Brine availability is "relatively steady to slightly declining and could reduce further" — 2024 EBITDA fell from $10.8m to $7.6m largely because of a partner contract rebasing that raised fees. Iofina does not control its raw material source 2025-05-12 final results.
2. Iodine price cyclicality and Chilean competition. SQM's seawater pipeline (2026) and Cosayach's delayed Bull Mine project will add supply; a global recession or surge in Chilean output could compress the $70+/kg price assumption that underpins the bull case 2026-04-30 final results.
3. Customer concentration and tariff exposure. Seven customers each represented >5% of 2025 sales; one customer was 17% ($11.3m). China tariffs have made Chinese sales "essentially unattainable." Loss of a major customer or further tariff escalation would have a material impact 2026-04-30 final results.

Operating leverage

Iofina has moderate operating leverage — better than commodity processors, weaker than pure-platform software. The cost structure: 2025 cost of sales of $48.5m (73% of revenue) is dominated by variable inputs (raw materials $22.8m, labour/overhead $24.6m), so incremental revenue does NOT drop straight to profit. However, fixed central costs are well-contained: administrative expenses grew only $0.5m (10%) on $12.0m of incremental revenue, and IO#11's commissioning showed gross margin lifting from 24% to 27% in a single year. The 2025 ratios — revenue +22%, gross profit +36%, Adj EBITDA +56%, PBT +75% — illustrate genuine operating gearing as production scales. The structural inflection is the Permian plant: each new larger plant adds 170-220MT at roughly the same SG&A base, which should push EBITDA margin toward 25-30% at 1,000MT+ run-rate. A 10-20% revenue beat above current expectations would plausibly add 40-60% to operating profit, but not multiples — the variable-cost share caps the leverage. 2026-04-30 final results; 2025-09-18 interim

Value-trap signals

None identified. Revenue growing, EBITDA accelerating, net cash improving, plants delivered on time and budget, no related-party issues of substance (one prior $0.9m hemp impairment fully recognised), no dividend cuts, no going-concern qualification, no restatements, no customer churn.

Earnings vs. expectations

• FY2022: Trading update (Feb 2023) guided EBITDA "no less than $10.5m" vs delivered $11.5m → beat.
• FY2023: Revenue $50.0m vs expectations met; EBITDA $10.8m → in line/modest miss vs prior year.
• FY2024: EBITDA $7.6m vs management's earlier $8.5-9m guidance (Q1 2024 update) → miss, driven by brine contract rebasing and Q4 logistics delay.
• H1 2025: Production guided 235-250MT, delivered 305.5MT and lifted full-year guidance → beat.
• FY2025: "Exceeded targets set at the start of the year" — revenue and EBITDA ahead of market expectations 2026-04-30 final results.
• H1 2026: Guidance lifted from 325-355MT to 385MT in April update → another beat in progress.

Pattern: predominantly beats with one clear 2024 miss tied to a specific renegotiated contract; recent track record (2025/H1 2026) shows consistent positive revisions.

Conviction

4 — high.

Anchoring factors: (1) Disclosure is detailed and consistent across eight years of audited accounts with clean audit opinions; (2) the production trajectory and unit economics are mechanically traceable from MT × $/kg, leaving little black-box judgement; (3) the valuation is anchored on near-term, visible capacity additions rather than speculative TAM.

Limiting factors: (1) Iodine price is the single biggest swing factor and is set by a small group of Chilean producers outside Iofina's control; (2) brine supply is contractually controlled by third-party O&G partners, introducing volume risk that no DCF fully captures.