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What's next for Nanoco's share price after 74% dive?

UK technology company Nanoco Group [NANO] saw its share price sink 74% to 8.50p on 21 June, following the announcement it had lost a contract with a major US-based customer. 

Hailing from Manchester where it develops and manufactures light-emitting components used in LCD and other screen displays using what’s called quantum dots, Nanoco did not name the client, however it is rumoured to be Apple, who has reportedly abandoned a project on the iPhone camera.

 

‘A severe setback’ for Nanoco

The contract will run until December 2019, so the loss will not impact Nanoco’s performance for fiscal 2019, which runs until the end of July. Losing the business “is clearly a severe setback and we have therefore cut our FY20 estimates substantially,” the company said in a statement published on 24 June. It reduced revenue forecasts from £13m to £4m for next fiscal year. 

“We note though that the customer’s decision relates to a change in strategy rather than issues with the performance of Nanoco’s materials or services,” it added.

“We note though that the customer’s decision relates to a change in strategy rather than issues with the performance of Nanoco’s materials or services” - Excerpt from Nanoco's statement

The stock recovered some its value the following week, but it closed Friday at 14.25p, some 67.64% down on its price before the announcement.

 

Nanoco’s intellectual property advantage

Investors had hoped the US contract, first announced in 2018, would help bring Nanoco to profitability. 

Management reckons it will have enough cash in the bank to keep operating until summer 2020, “giving the company a year to explore commercial and strategic options,” read its statement. It went on to say that it has a cash balance of approximately £6m. 

One option could be to sell the company. Stockbroker Peel Hunt, which withdrew its ‘buy’ recommendation and forecasts for the stock, noted the company has considerable intellectual property that would be of value to a third party in a note to its clients.

 

Market cap£38.28m
Price/book (MRQ)371.53
EPS (TTM)-1.50
Return on equity (TTM)-35.90%

Nanoco share price vitals, Yahoo finance, 03 July 2019

 

Indeed, the company itself highlighted that it has a strong IP base and a “state-of-the-art manufacturing facility with an estimated 12 months of cash to explore new commercial options including with its US customer”. 

Commercialising its knowledge could be a way of turning the business around and the likelihood of this succeeding increases by the fact that it already has more than 20 partnerships with large firms.   

However, analysts are still sceptical whether this is enough to increase profits when the company doesn’t have a business outside of manufacturing quantum dots technology. 

BlueFin Research, a boutique research firm based in the US reportedly said last week that Apple [AAPL] had shut down work on the quantum dot image sensor due to cost constraints, according to the Daily Telegraph. Shares in Apple fell 0.09% to $197.92 on Friday.

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