Nanoco banking on Samsung litigation case victory

The story for Nanoco (NANO) hasn’t changed much since it published its annual report in November. The company, which produces ‘quantum dots’ that emit light and can be used in infra-red sensors and TVs, is still striving to achieve large-scale commercial manufacturing.

On an annual basis, interim revenue and other operating income increased 21 per cent. This, however, was from a low base of £1.1mn. The mystery “European electronics customer” is ordering more Nanoco technology – including two additional work packages, one of which is being delivered after the period end. This at least is a promising endorsement of the product.

The Asian chemical customer is also sticking around and Nanoco has been able to deliver the “important sensing product” for it. Management continues to be vague about the identities of its customers and did not reveal any new additions in these results.

The promising operational news is that with first commercial production orders getting closer, management has decided to consolidate activities in the Runcorn production site. Once the Manchester site has been fully vacated the cost base will reduce by £0.7mn a year.  

The other important bit of news that continues to rumble on is the litigation case against Samsung (KR:005930). Nanoco is suing Samsung for allegedly stealing its intellectual property and the board’s confidence has increased further “following the oral hearings conducted as part of the IPR process”. The decision on the validity of five patents is due in May 2022.

Samsung currently has a quantum dot market share of around 90 per cent. However, most dots use cadmium, which is a lethal heavy metal and governments are expected to limit its use. If Nanoco wins this case, all companies that want to produce cadmium-free dots will have to purchase a licence to Nanoco’s IP.

The investment case is still speculative in nature. It needs to win its IP case and its customer base is still opaque, although this set of results suggests profitability is drawing nearer. FacstSet currently has no forecast on future earnings because there is no broker coverage – which adds to the fog. More will be revealed when the decision on the patents is made in May. For now, we stick to hold.

Last IC View: Hold, 20p, 3rd Nov 2021