Four AIM shares on the cusp of something big
18th January 2019 15:24
This former AIM writer of the year names the small-caps that could be about to fulfil their potential.
Some companies have enormous initial promise, but they can take years to achieve a tiny fraction of that promise – and some just fail completely. In many cases, investors can get impatient and the share price may slump.
Keeping an eye on companies and assessing when they really do seem to be on the verge of making commercial progress rather than just technological progress can prove highly profitable – although success is still not guaranteed.
Location Sciences (LSE:LSAI), one of my 2019 share recommendations, is an example of a company that has evolved over the years as the original business proved not to have the prospects originally thought.
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However, there is a good chance that the refocused digital advertising verification technology operations can lead the company into profitability.
Here are four other companies that could be near to making a significant breakthrough in commercial terms.
Ilika (IKA)
17.75p
Battery technology developer Ilika (LSE:IKA) joined AIM in 2010 at 51p a share. In those days Ilika was involved in a range of advanced materials projects in the energy, electronics and medical sectors. The medical business was sold at the end of 2012 and, over time, management has focused on battery technology. Battery technology licensing agreements are on the horizon.
Ilika has developed solid state batteries under the Stereax trademark. There is a range of batteries which vary from long life batteries for home automation, sensors and medical products to large batteries for the electric vehicle and consumer electronics markets.
For the past few years Ilika has shown bar graphs that include non-disclosure agreements, research and development programmes, evaluations being undertaken and licensing proposals that have been put to potential partners. One thing to bear in mind is that licensing negotiations were first included in these charts in 2016, but none of those proposals came to fruition. So, nothing is guaranteed, although Ilika is optimistic about the current prospects.
There are currently four ongoing licensing negotiations and management is confident that they will be able to secure at least one deal this year – maybe even in the next few months.
A manufacturer has been signed up in readiness for commercial agreements sparking demand for batteries to be produced.
Last year, Ilika raised £4.1 million at 20p a share and the share price has dipped below that level. There was £5.8 million at the end of October 2018.
How long this cash lasts will depend on how quickly Ilika progresses, but broker forecasts suggest that there should be up to £3 million left by the end of April 2020.
Ilika already has contracted revenues of £4.9 million over the next 30 months and capital investment should peak this year. This means that Ilika has the finance it requires to secure licensing deals and supply the batteries.
Accsys Technologies (AXS)
119.25p
Sustainable timber supplier Accsys Technologies (LSE:AXS) has been quoted for more than 13 years. The model was to produce Accoya timber in its own factory in the Netherlands and licence the technology to other manufacturers around the world. Although licensing deals were done in the past the investment in new facilities was not made.
Accsys uses a process called acetylation to convert softwoods into Accoya, which is guaranteed to last for 50 years in the open air. Demand for Accoya exceeds production and the price has been increased. The time is ripe for licensing deals with serious players that have the finance to build plants in markets around the world.
Accsys recently increased its capacity for Accoya production by 50% to 60,000 cubic metres. Prior to that plant coming on stream revenues rose from €28.3 million to €31.1 million in the six months to September 2018.
The development of a Tricoya plant in Hull is progressing. Construction could be completed in the middle of 2019 and it will breakeven at 40% of capacity. Tricoya, which is used in MDF-type panels, is currently produced from Accoya and this plant will free up Accoya production for other customers.
Numis forecasts a rise in full year revenues from €60.9 million to €73.1 million and a decline in loss to €5.1 million. Net debt is expected to be €46 million at the end of March 2019 and it will continue to rise because of the capital investment programmes, including potentially another reactor in the Netherlands.
If partners can be secured in the USA and Asia then this could provide a significant boost to the company. Petronas Chemicals has entered into an agreement to assess the feasibility of a Tricoya plant in Malaysia. Talks continue with other potential partners and there should be more news as the year progresses.
Motif Bio (MTFB)
39.53p
Motif Bio (LSE:MTFB) is developing a new antibiotic called iclaprim. Resistance to existing antibiotics means that it is imperative that new and effective antibiotics are brought onto the market.
Iclaprim was originally discovered by Hoffman-La Roche and Motif addressed the reasons it failed to gain FDA approval in 2009. Two phase III trials have been completed in the US. The addressable global market for iclaprim could be worth $2.8 billion.
The FDA has accepted the filing of the company's new drug application for iclaprim, relating to the treatment of acute bacterial skin and skin structure infections (ABSSSI). It has been granted priority review with a potential approval date in the first quarter of 2019.
Source: TradingView (*) Past performance is not a guide to future performance
Commercialisation plans have commenced. It is likely that the US hospital market will be targeted via a contract sales organisation, while in Europe a partner will be sought to help to finance approvals in the region.
Motif had $19.8 million of cash at the end of June 2018 and the cash outflows have reduced. More cash is likely to be required in order to launch the product.
The share price has bounced back in the past few weeks and is not far from its 12-month high – but there should be more to come. The share price is nearly double the 20p a share AIM placing price just short of four years ago. Just over two years ago there was a fundraising at 28p a share as part of the Nasdaq flotation. Barely more than one month ago the share price was below that level.
If obtained, FDA approval will increase investor interest on Nasdaq, in particular, and could herald a further share price boost.
OptiBiotix (OPTI)
90p
OptiBiotix (LSE:OPTI) does not fit exactly with the other examples. Unlike them, the share price has risen sharply and progress has been relatively rapid. OptiBiotix reversed into an AIM shell in August 2014 at 8p a share.
Despite the share price rising by more than 10 times, there is enormous additional potential. The microbiome-focused company has reached a point where revenues are accelerating and there is the potential to unlock value in some of the offshoots of the business.
The business has been run in a very lean way with trials undertaken by contract specialists and manufacturing outsourced. This means that the overhead base is relatively low so when revenues do ramp up and breakeven is passed profit should grow significantly.
Revenues are growing for the SlimBiome weight management ingredient and additional deals are being signed and this is reducing the cash outflow.
The focus is on obesity reduction, natural sweeteners, cholesterol reduction and medical products. It is not just a question of OptiBiotix building up its own revenues. Once subsidiaries have developed microbiome-based products focused on a specific market they can be spun out and quoted separately.
Source: TradingView (*) Past performance is not a guide to future performance
SkinBioTherapeutics (LSE:SBTX) was the first spin-off from OptiBiotix. A placing at 9p a share raised £4.1 million net for the skin health company in April 2017 and, although, diluted, OptiBiotix retains a 41.9% stake. SkinBioTherapeutics is talking to potential partners and the final phase of human studies for a cosmetic skin cream formulation should end in the first quarter of 2019.
On 24 September, subsidiary ProBiotix Health was formed and in December it raised £1.025 million via a convertible loan note issue. The plan is to float the business later this year. Admittedly, the uncertainty in the markets could hamper that plan, but it will eventually be spun-off even if it takes longer than expected.
OptiBiotix may decide to raise cash by reducing its stake in SkinBioTherapeutics – depending on market conditions. The stake is currently valued at £7.4 million. Some of the cash raised would be paid as a dividend.
*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
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