Startup technology companies can make great investments, but they could also lose you a lot of money — especially if the early cash-burn years go on too long. Here are two I’ve had my eye on lately.
Benchmark Holdings (LSE: BMK) describes itself as an “aquaculture biotechnology and food chain sustainability business” — fish breeding, genetic technology, and stuff like that.
After a few year of losses, Benchmark is forecast to deliver a modest profit this year which should start ramping up in 2018. Right now we’re looking at a forward 2018 P/E of around 38, but in early profit days it’s not a very useful measure — and it would actually still give us an attractive PEG of 0.5. So how is Benchmark really doing?
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First-half results released Tuesday showed an increase in revenue of 69% to £69.2m, with an operating loss reduced from £15.2m in the first half last year to £6.7m.
Net debt at the interim stage stood at £12.8m, down from £14.6m, but there was a big share placing again during the period, as there was last year.
Long-term prospects
The firm is clearly gaining interest in its products and services, with a new long-term collaboration project agreed with salmon producer Salmar. And Benchmark’s newly acquired shrimp breeding operation, INVE Aquaculture, has helped it to a contract with Manit Farms of Thailand for its water quality management technology.
For the rest of the year, the company says it should broadly meet current expectations, and reckons that a number of products coming to market between 2017 and 2019 should support its long-term growth.
Further share placings could cause issues with dilution, but if we’re really close to the turnaround phase, I reckon the 73p shares look like good value — and relatively low risk as far as lossmaking “jam tomorrow” companies go.
Wooden grow
I’m more fearful when I look at Accsys Technologies (LSE: AXS), a company specialising in the chemical preservation of wood. The firm floated on AIM as far back as 2005, and apart from a couple of years of small profits in 2008 and 2009, it’s been losses all the way.
The year ended 31 March 2017 brought in a pre-tax loss of €4.4m (from a loss of €0.5m a year previously), even though revenues rose by 7% to €56.5m. Annual losses have been relatively small and the firm’s cash pile has been depleting slowly, but a share placement in April, which raised approximately €14m, was necessary — and that has to disappoint those investors who really were expecting to see profits by now.
Time running out?
In fact, almost exactly two years ago, my colleague Peter Stephens pointed out that Accsys was “forecast to post a pre-tax profit of around £0.7m in the current year, followed by a pre-tax profit of £1.2m next year“, which put it on an attractive growth valuation at the time. Back then I’d have been bullish about it myself. But it didn’t happen, and analysts are still predicting losses to continue until at least 2019.
Meanwhile, the share price has collapsed by 96% from an early peak of around 2,260p back in 2007, to just 78p today. I’m seeing something of a niche company, disappointing false starts, and no sign of light yet. I do wish Accsys well, but right now the shares are in bargepole territory for me.
