The share price of high-tech company Nanoco (NANO) is building momentum, up 40 per cent since the announcement of promising full-year results in October. For good measure, at last week's annual meeting the company said business development continues to steam ahead. So there are good reasons to get excited, as Nanoco gets closer to generating income from its ground-breaking technology, and there is still time for investors to jump on board.
- Potential of its technology
- Agreements with major manufacturers
- Shipments under way
- Strong cash position
- Unclear timeline for commercial revenues
- Mass production unproven
Based in Manchester, Aim-traded Nanoco is a leader in producing energy-efficient and cadium-free quantum dots - miniscule particles of semi-conductor material that have gigantic potential. The company is targeting three huge markets with its patented technology - LCD TV displays, LED lighting and solar energy. In LED backlighting for LCD TVs, Nanoco's quantum dots can enhance colour. They can also improve LED lighting, making it resemble traditional incandescent lights, and they make solar cells more efficient.
A tricky part with quantum dots is how to produce them in sufficient volumes to be commercially viable. The Manchester outfit believes it has cracked the problem. True, there are competitors in quantum dot production, but they use cadium, a heavy metal substance that can be harmful if not regulated carefully. "We're way ahead of competitors," says Michael Edelman, Nanoco's chief executive.
NANOCO (NANO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 87p | MARKET VALUE: | £180m | |
| TOUCH: | 85-87p | 12-MONTHHIGH: | 87p | LOW: 50p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 8p | NET CASH | £15.2m | |
| Year to 31 Jul | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.99 | -0.78 | -0.3 | nil |
| 2010 | 2.94 | -1.37 | -0.6 | nil |
| 2011 | 2.64 | -3.22 | -1.3 | nil |
| 2012 | 2.95 | -4.35 | -1.8 | nil |
| 2013* | 4.00 | -4.20 | -1.9 | nil |
| % change | +36 | – | – | – |
Normal market size: 4,000 Matched bargain trading Beta: 1.1 *Canaccord Genuity estimates | ||||
The business model is a promising one, too, providing a route from research outfit to high-tech manufacturing business without soaking up cash. To reduce risk and share costs, Nanoco uses joint-development agreements, where prospective customers plough in funds to reach certain technical targets. Mr Edelman says agreements are in place with "major Asian manufacturers" for LED backlighting in TVs, the first market in which Nanoco is expected to reap commercial rewards. Nanoco has even delivered its first one kilogramme batch of green quantum dots - worth $2m - to a major Japanese company for use in LCD TV displays.
It is making progress in other target markets. In October, Nanoco announced a follow-on agreement with one of the world's largest lighting companies. A Phase 2 deal has also been signed with Tokyo Electron, a solar PV (photovoltaic) component supplier. Such is the growing demand for cadium-free quantum dots that Nanoco has upped its target for annual production from 200kg to 400kg in 2014. The current output is about 25kg a year.
Sure, in the high-risk world of high tech, success can hardly be guaranteed. Nanoco has still to prove it can produce quantum dots in big quantities, and the timetable for licensing and royalty revenue remains frustratingly fuzzy. Analysts at investment bank Nomura Code believe that Japan's Sharp, a major JDA partner, has eased back its product development as it tries to cut massive debts.
