Nanoco agrees extension to Osram lighting agreement as results announced

Nanoco Group, which makes fluorescent quantum dots for use in TVs and lights, has signed a follow-on agreement with German lighting giant Osram as it announced pre-flagged annual results.

Nanoco, which has worked together with Osram to develop better performing lighting products under a joint-development agreement since 2011, confirmed revenue of £2.0m and net cash £24.3m for the year ended 31 July.

After a transformational year, as it completed the building of its South Korean manufacturing facility with Dow and won LG Electronics as the first television-making customer for this partnership, directors confirmed that sampling from the plant should begin "in the very near term", having previously been expected before the end of September.

As a result, the company expects recurring income to begin in the second half of the new financial year rather than in fourth quarter of the current calendar year.

Broker Canaccord clarified that commissioning and first customer shipments at Dow’s South Korean facility are anticipated in the coming month, which implies that Nanoco will receive its first royalty revenue in February 2016 versus previous expectations of November 2015.

On the Osram agreement, chief executive Michael Edelman said: "We're delighted to sign this latest joint development agreement with Osram and to continue this exciting work focused on creating LEDs with substantially improved colour performance. Lighting is a core target market for our cadmium-free quantum dot technology."

Most the technical efforts of the companies' collaboration has been centred on encapsulating Nanoco's cadmium-free quantum dots to optimise them for the operating conditions associated with LEDs.

Canaccord noted that investors have stayed on the sidelines due to delayed progress in gearing up for first shipments but was "at the start of an exciting journey".

However, with revenue and profits dependent on a number of variables, base case forecasts have been materially reduced to "a more prudent level".

"Our previous valuation of 275p was DCF-based. We elect to base our new price target on a probability weighted approach based on scenario analysis. Assuming a 70% weighting for our base-case scenario and a 30% weighting for the bull-case scenario, we arrive at our new price target of 150."

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