Nanoco (LON:NANO) make Quantum Dots which can be used in things like LCD TVs. So there’s a huge potential market for it in that segment alone, and Dow Chemical has taken a very real interest in the company.
There are investors that I am highly respectful towards who are actually very bullish on this stock, so I stand to look very foolish in this post.
I have to admit that I am very sceptical about current valuations for this company. In my own crude way, I might look at this and say “could this company generate £100m in revenues. If so, then I might put a valuation of £300m on it”. Very very crude way of looking at it, to be sure. Incidentally, I later discovered that the semiconductor sector is trading on a median PSR of 3.46, so my finger-in-the-air multiple of 3 was actually surprisingly close to the mark.
It’s not that I don’t think the bulls are necessarily wrong, or that I think it can’t make those kinds of revenues. But, in my mind, the problem is, even if I’m right, it’s very difficult to get paid off. By a stroke of coincidence, at 138.6p, NANO sits at a market cap of £300m – which basically means there’s no upside for investors at current prices.
That’s just my view, of course, and I just know that they’ll be readers out there who think I’m being naive.
In y/e 31-Jul-2013, NANO had revenues of £3.93m. Next years estimates are £4.05m, but they’re expected to rise sharply to £13.9m the year after. That’s still far short of £100m, and an indication that investors will need to look more than 3 years out to reach those levels.
There’s another thing I didn’t like. On 15-Oct-2013, the company had a placing of 6.37m shares for GBP 10m (at 157p). That represented about 3% of the company’s issued ordinary share capital at the time.
Placings are something I am beginning to look at more closely, and the failure of directors to participate in it was a red flag to me. If the placing was transformational, and the directors thought that the share was cheap, with near-term production, then wouldn’t the directors have backed up the truck? Their failure to do so suggests to me that investors are going to need a much longer term perspective than…
