It's always difficult to predict what the next big trend in tech is going to be - and how long it will last. The woefully short lifespan of the ill-fated minidisk is testament to this. Still, there are areas of technology that are certain to stick, and nanotech is surely one of them. Within this sphere, a small company called Nanoco (NANO) is at the cutting edge of quantum dot wizardry. Crucially, this Manchester University spin-out has sealed a commercial deal with the giant Dow Chemical Company, and this, we believe, puts Nanoco firmly on the path to success.
- Deal with Dow Chemicals
- Commercial roll-out imminent
- Favourable regulatory backdrop
- Acquisition target
- Loss making
- Huge technology risk
So what exactly does Nanoco do? Well, its quantum dots enhance the colours of LCD screens and can be easily and cheaply integrated into manufacturers' existing infrastructure - they slide into a film located between the LED light source and LCD panel. And, unlike other quantum dot makers, Nanoco's little guys can be produced at high volumes and, vitally, are manufactured without the use of heavy toxic metals, notably cadmium, which is used widely in consumer electronics. Government regulation in the EU and US is increasingly curtailing the use of cadmium-based quantum dots in electronic devices and the EU Commission is close to banning such equipment altogether. That makes Nanoco's dots potentially future-proof in the quantum dot display market.
But it's the deal with Dow that offers the most potential. When such a large company allies itself with a minnow like Nanoco, you know it's for a good reason. Under the terms of the partnership, Dow will have exclusive worldwide rights to manufacture, market and sell Nanoco's quantum dots for use in electronic displays. In turn, Nanoco will receive royalty payments related to Dow's sales through its massive marketing and distribution network.
| NANOCO (NANO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 124p | MARKET VALUE: | £269m | |
| TOUCH: | 124-125p | 12-MONTH HIGH: | 155p | LOW: 83p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | 38 | |
| NET ASSET VALUE: | 8p | NET CASH: | £12m | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 2.9 | -4.4 | -1.6 | nil |
| 2013 | 3.9 | -5.0 | -1.7 | nil |
| 2014 | 1.4 | -9.1 | -3.4 | nil |
| 2015** | 4.0 | -9.0 | -3.0 | nil |
| 2016** | 18.1 | 8.0 | 3.3 | nil |
| % change | +353 | - | - | - |
Normal market size: 5,000 Matched bargain trading Beta: 1.34 **Liberum forecasts, adjusted EPS figures | ||||
Encouragingly, Dow recently announced the construction of a manufacturing facility in South Korea, which will be the world's first large-scale cadmium-free quantum dot factory. Commercial production is expected to start in mid-2015 and the positioning of the facility - in the heart of the Asian optoelectronics industry - suggests Dow might have some major electronics customers in the pipeline, such as Samsung and LG. Until production commences, Dow and Nanoco will meet customer demand through Nanoco's existing facility in the UK.
This does, however, mean that money won't start flowing into Nanoco's loss making coffers until 2016. But with broker Liberum forecasting sales of £51m by 2017 and EPS of 16.2p, it should be well worth the wait if the patented technology takes off. The big caveat being the 'if'. Meanwhile, Nanoco's net cash position, following a £10m share issue last year, should keep it going until royalties start to roll in. And Nanoco has its finger in other pies. It's developing quantum dots for other applications, including LED lighting, solar cells and biomedical imaging. Finally, Nanoco could be snapped up by a bigger player for a hefty sum, which would be a boon for shareholders.
