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Nanoco – emphasises a “scale-up and mass produce” agreement… what’s the financial detail?

By Steve Moore | Thursday 8 February 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Shares in Nanoco Group (NANO) are currently racing ahead on the back of a Material Development and Supply Agreement announcement, with a sub-heading; “New partnership includes infrastructure investment, development, milestones and commercial supply agreement”. So, what’s the detail?

The agreement is stated to be with a “large”, but “undisclosed US listed corporation” and to include that “the partner will fund the capital expenditure required to expand Nanoco's Runcorn facility. The commercial terms of the agreement include payments for success based milestones, and commercial supply of materials, both of which will strengthen Nanoco's balance sheet. Based on the current timelines, commercial supply is anticipated to begin early 2019”. Nanoco Chief Executive Michael Edelman adds;

“Our deep expertise in the development and mass production of highly differentiated nanoparticles has enabled us to create partnerships, and future revenue streams, with partners around the globe.”

Having though been founded in 2001 “in order to progress the development of quantum dot technology that was previously developed at the University of Manchester and Imperial College, London”, previous results – for a year ended 31st July 2017 – showed a loss of more than £9 million on revenue of £1.3 million and cash (net) down to £5.7 million. On track for cash crunch ahoy (again!), an £8.6 million placing was got away at 18p – the shares having been well above 100p as recently as 2015, above 45p at the commencement of 2017 and indeed closed at 27.5p right before the placing announcement. They have been recently heading towards 23.5p, but are currently up towards 35p on the back of the latest announcement – to capitalise the company at circa £100 million.

It does look positive news, but I note no financial detail is provided and even commissioned researcher Edison states “execution risk remains” and “at this stage there is too little detail to either alter our near term estimates or introduce new forecasts for FY19 or beyond. Visibility on the implications of both this new partnership and progress in display should progressively improve over the course of this year”.

A near-term estimate is for a current year pre-tax loss of £6.4 million (on revenue of £4.7 million) - and, with interims due in the next few months, I presently continue to avoid.

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