Even casual observers might have spotted the records being smashed in long distance races by athletes wearing Nike (NKE:NYSE) running shoes. The latest of which saw Kelvin Kiptum come within 35 seconds of the two-hour barrier at the Chicago Marathon
as he set a new all-time best for the distance on 10 October.

What you may not know is a UK small cap has had a key role to play in the technology behind this footwear.

Croydon-headquartered chemicals outfit Zotefoams (ZTF) has enjoyed a relationship with Nike for around seven years, originally focused on distance road running shoes as well as track spikes but later extended into trail running footwear with the Nike Zegama, launched in 2022.

WHAT DOES ZOTEFOAMS DO?

Zotefoams lightweight cross-linked polyolefin-block foams are stronger, lighter, and more durable than rival materials and therefore save weight and energy.

The company’s products are used in everything from air conditioning units to the aircraft industry, cars, chips, electronics, healthcare, transport and even sports and leisure equipment like cricket pads. Its main markets are footwear, where it has an exclusive agreement to supply Nike that was recently extended to 2029, product protection and transportation, which includes aviation and aerospace, automotive and rail.

The ultimate aim is to become the world leader in cellular-materials technology in markets with elevated levels of organic growth, both through its own brands and through partnerships and targeted acquisitions.

The lightweight foams maker operates under an exclusive supply agreement with Nike for footwear product cushioning.

Zotefoams announced at the time of its first half results in August that it will continue to collaborate with Nike ‘on technical foams’ for high-performance footwear until 31 December 2029.

A DEVELOPING RELATIONSHIP WITH A US GIANT

Zotefoams CEO David Stirling tells Shares: ‘Our relationship with Nike started in about 2016. Zotefoams developed some lightweight foam technology at the request of Nike.

‘In 2016 [at the time of the Rio Summer Olympics] Nike used this foam technology to develop racing shoes that later went on to win gold, silver and bronze in the men’s marathon race.

‘From that point onwards, we decided to work together with Nike collaborating on unique footwear technology. We now provide a range of foam materials for several Nike racing shoes.’

Nike rebranded the lightweight resilient Zotefoams material as ZoomX. The Nike running shoe is made from lightweight, resilient Zotefoams and a stiff carbon fibre plate aiming to give the elite athlete a ‘propulsive ride’.

BREAKING RECORDS

In 2018, elite Kenyan runner Eliud Kipchoge broke the men’s world record for the marathon wearing the Zoom Vaporfly 4% - the first commercially available Nike racing shoe using a midsole system.

After Zoom Vaporfly 4% Nike has developed several racing shoes for elite athletes including Nike Zoom Fly, Tempo and Alphafly Next%.

Stirling says there are no plans to take the running shoes it collaborates with Nike to the global mass market.

He says: ‘The running shoes we develop with Nike engineers are for elite athletes.

You will see Zotefoams technology used in podium winning running shoes [at a price point of £400]. So, you would not necessarily see a regular person buying a pair of podium winning running shoes, this person might opt for a fashion-type shoe [at a price point of £80].’

The company recently announced that it will be supplying Nike with high-performance foams for its Ultrafly pinnacle trail racing shoe.

HIGH PERFORMANCE IS PERFORMING

Footwear sales form a significant part of Zotefoams’ High-Performance Products Division (HPP) – which is its most profitable division.

This is one of three business units and sits alongside Polyolefin Foams and MuCell Extrusion which encompasses its nascent ReZorce product. Zotefoams characterises this as an industry first in fully recyclable, single material barrier packaging technology – designed to help manufacturers of food, personal care and household products meet plastic reduction and recycling commitments.

In the first six months of 2023 the company reported a 9% increase in revenue to £64.6 million with improved margins reflected in a pre-tax profit up 30% to £7.4 million. Operational cash flow was up 12% to £5.8 million. Significantly, net debt was down 26% to £28.3 million. It stuck with full-year guidance. Sales in the HPP arm were up 11%.

HOW ANALYSTS VIEW THE INVESTMENT CASE

Zotefoams has delivered robust growth in revenue over the last six years but earnings per share have been more variable and the share price has been unable to get close to the highs above 600p it enjoyed in 2019 ahead of the pandemic. Some observers believe the business could be at an inflexion point though.

Analysts at Peel Hunt observed in a recent research note: ‘Zotefoams has delivered a robust performance against a tough backdrop in recent quarters with volatile raw materials costs, labour inflation, foreign exchange swings, supply chain issues amongst other challenges.

‘The outlook is far from certain, but the near term feels supported by the likes of footwear and aviation, which is picking up.

‘Longer term, HPP looks set to gather strength and ReZorce (with the Joint Development Agreement now signed with a major European Packaging company) is getting ever closer to possibly realising significant value.

‘We now sit with HPP gathering pace, Polyolefin Foams providing a steady base, and ReZorce showing genuine potential for transforming the valuation of the business.’

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