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Versarien: How are these collaborations coming along, Neill?

By Cynical Bear | Thursday 20 September 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.

A couple of months on from the well-received annual results of Versarien (VRS) on 19 July, the share price has risen to even higher levels from when I initiated coverage (HERE), now valuing the graphene part of the business at well over £200 million so I thought I’d pose a simple question to CEO Neill Ricketts – how are those collaborations coming along?

With the current share price at over 160p, that values the entire business at about £240 million and, as I’ve mentioned before the non-graphene parts of Versarien are pretty dull, mature loss-making businesses and at a push I’ll attribute £10 million of value to those, leaving the rest of value to be attributed to the nascent graphene business.

Seems ludicrously high to me but that price could look cheap I guess if the countless collaborations that have provided limited revenue to date start throwing off oodles of revenue and cash, so I thought I’d take a closer look. In the annual results on 19 July, Neill was kind enough to set out a detailed update on the various partnerships and thought I’d highlight a few.

November 2017 – Collaboration with global consumer goods company - Plastic bottles have been produced using graphene enhanced polymers which are currently undergoing physical testing.  Blown film trials are being conducted with results expected in the next two months.

Next two months” – that’s now come to an end so what were the results?

December 2017 – Agreement with global chemical major - Blown film trials have been conducted. Performance results and film material has been analysed. A second round of trials are underway with results expected in the next two months.

Um…those two months are up – any news?

February 2018 – Agreement with the shoemaker Vivobarefoot - Initial testing concluded and further testing now being carried out with various graphene loadings.  Results expected shortly.

Results expected shortly” – I wonder if that is longer or shorter than two months. Either way, any news?

April 2018 – Agreement with Luxus - Graphene enhanced polymers and recycled polymers being are evaluated for customer projects. Initial results are expected shortly.

Hmm, that “expected shortly” line again – any news?

May 2018 – Consumer goods collaboration for polymer structures in plastics - Polymers compounded with graphene have been shipped to customer with test results expected shortly

That damn “expected shortly” again.

So there we go; there are at least five agreements where one is expecting news, so come on, Neill, share the exciting results. Surely at least one or two of these has now turned into a revenue generating contract by now.

With a lack of news to-date, I am still struggling to get my head around the current share price but as with any of these cult stocks, they can stay at ridiculously high share prices for a long time. I am not actually short Versarien at the moment and I have been trying to think through the best time to be so.

I am confident of a few things. First, I don’t expect the interims due by end of the year to show much by way of graphene revenues and, as a result, the year-on-year growth will be fairly limited as the acquisitions have been held for more than a year and more cash will have been burned. That’s not going to be particularly exciting.

Secondly, I expect a placing at around the same time as the results as cash will be relatively low by then and insufficient to get through 2019. Thirdly, on the basis of evidence to-date, I would be surprised by any massive graphene contracts signed although would obviously reassess if so. It is possible that this could come sooner and it not beyond the wit of man that the recent relative weakness in the share price is connected to that.

Accordingly, I have reached the conclusion that going short off the back of the earlier of the interims or the placing might be the way to go as I sense gravity might start to kick in by then as these countless collaborations prove to be less fruitful than hoped. Will obviously reassess at the time.

In the meantime, got any news, Neill?

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