Good morning! I trust that readers had an enjoyable long weekend. Not a huge amount of news today, so that eases us gently back into work. So here goes:




Proton Power Systems (LON:PPS)

This is a fuel cell development company, based in Newcastle Upon Tyne. This is the first time (and probably the last) that I've looked at their results. What a mess! Calendar 2013 saw turnover of £1.1m, and an operating loss of £4.9m, worsened to a pre-tax loss of £9.3m mainly due to £829k finance costs, and £3.5m loss on derivatives.

The interest cost suggests that the company is indebted, which is never a good thing for loss-making companies. I would only consider a loss-making company if they have at least 18 months' cash burn in the bank already.

The Balance Sheet here is insolvent - i.e. it has negative net assets of £13m. Current assets of £1.0m are dwarfed by total liabilities of £16.9m, most of which  (£12m) is desribed as "Borrowings". Following note 16 through to the detail on this, and it turns out that the major shareholder, Roundstone Properties, is lending the company money to keep it afloat, on terms that look onerous - 10% p.a. interest, plus the loans are convertible into shares at just 2p. Bear in mind that the current share price is 9.25p, and you can see that potentially heavy dilution is in the pipeline.

Roundstone seem to own about 93% of the company, which makes it having a Listing at all pretty ludicrous. The market cap of £59m at 9.5p per share also looks to be a fantasy valuation, and for that reason I wouldn't go near this one at anything above 2p per share. Even at that level it would be a total punt.

The big problem with fuel cell developers is that there are so many of these companies all over the world, many of which are much better funded than this one. So what are the odds of happening to pick the one that's going to be a success, instead of one of the many that are likely to fall by the wayside when funding dries up?

I was caught once before on fuel cells, with a thing called Voller Energy, about 10 years ago, where I lost a packet…

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