Tuesday, November 01, 2016

Versarien: Bet on Materials Science

Invest vehicles are sometime hard to find that support sustainable businesses and environmentally-friendly technology without the risk often inherent in developmental stage companies that are usually behind the most innovative ideas.  Investment in materials often means choosing between established mining or processing companies that produce as much environmental damages as profits.  Unfortunately, new technologies that safeguard the planet often require years to prove commercial viability and even more years to gain sufficient scale to deliver positive earnings.       With a portfolio of materials science operations, Versarien Plc (VRS:  London) offers investors a mix of established and cutting edge materials technologies.
Versarien’s investment in Total Carbide taps a six-decade history in the tooling industry.  Based in Buckinghamshire, the division, fabricates all manner of metal components for customers who have complex applications or particular performance requirements.  A host of customers have crossed Total Carbide’s threshold, from oil and gas producers to textile manufacturers to valve and pump makers.  Total Carbide has a particular knack with sintered tungsten carbide parts. 
Sales for the division totaled GBP3.1 million in fiscal year ending March 2016.  This was lower than the previous year when sales totaled GBP4.5 million.  Sales slipped in the more recent fiscal year as oil and gas customers trimmed spending as crude oil prices remained depressed.  Operating profit in the segment was GBP100,000.
Versarien recently added a new division called Thermal Products, which consists of a portfolio of heat exchange materials used in electronic equipment.  Versarien holds exclusive rights to a patent-protected technology to create microporous copper foam for use as a heat sink in electronic circuits among other uses.  Besides the obvious consumer electronics application, telecom and broadcast equipment and networks, industrial lighting, aerospace and automotive are typical customers.  Thermal product sales rose to GBP1.3 million in fiscal year 2016, the first full year the heat sink technologies contributed to sales for the full year.  The segment reported a net operating loss of GBP1.0 million before exceptional items.
Versarien has also dipped its corporate toe into graphene, the wonder material discovered by scientists at the University of Manchester.  Versarien’s investments in 2-DTech Limited and AAC Cyroma Limited have given the company access to cutting edge graphene knowhow and the ability to produce graphene-enhanced plastic products.  The company has patented a process for commercial production of these innovative plastics.  Looking beyond plastics, partnerships have been formed in both the battery and composites arenas that could take Versarien’s graphene into 3D printing and aerospace applications.
Graphene products actually captured sales in fiscal year 2016  -  GBP16,000.  The net loss was GBP300,000.  Sales were lower and the loss deeper than the previous year.  This is to be expected as the company invests in research, development and strategic relationships to penetrate the commercial market.
Granted Versarien is experiencing net losses.  In fiscal year 2016, the net loss before non-cash expenses, interest and taxes was GBP1.3 million on total sales of GBP4.4 million.  At the end of March 2016, Versarien held GBP1.6 million on its balance sheet.  So far the company has avoided debt, giving management quite a bit of wiggle room until the newer technologies contribute to earnings. 
Some investors might look at these financial performance figures and find Versarien looks just like any other developmental stage materials company.  However, unlike many early stage companies that rely on scientist-founders to execute on initial commercialization and marketing strategies, Versarien benefits from executive leadership with extensive experience in commercializing new technologies and manufacturing operations.  Top leadership also has experience in operations in several of Versarien’s target markets, including aerospace, automotive and coatings.  Senior officers also have previous successes in turnaround situations, mergers and acquisitions and capital raises.   In other words, the Versarien bench is not learning everything the hard way for the first time as is often the case with new technology innovators.  This deep bench of talent should be a strong calling card for Versarien as it seeks out additional materials technology and call on potential strategic partners or new customers for its existing products and technologies.
Unfortunately, a trip ‘across the pond’ is necessary to get a stake in Versarien.  So far there is no quotation or listing in U.S. services or exchanges, leaving the London exchange the only platform to get the stock.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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