It's hard to view the contract re-arrangements between cadmium-free quantum dots technology developer Nanoco (NANO:AIM) and its US chemicals giant partner Dow Chemical (DOW:NYSE) without a generous helping of scepticism. The market certainly does, hence today's 14% share price hammering to 39.5p.
The Manchester University spin-out tells us today that it is changing its previously exclusive licensing deal to a non-exclusive one. Nanoco believes that this will free it to pursue other routes to revenues.
'Under the modified agreement, Dow has non-exclusive rights for the sale, marketing and manufacture of Nanoco's quantum dot technology for use in display applications while Nanoco is free to pursue a range of routes to market,' the company states.
According to today's statement, this new display strategy will allow Nanoco to maximise the roll-out of its technology and give the company greater control over the commercialisation of its intellectual property in the display industry, supplying its technology into things like high-definition TVs, tablets and smartphones, for example.
'In the near term the company intends to develop new partnerships to serve the display sector as well as to manufacture, market and sell its cadmium-free quantum dot products directly from the company's own plant in Runcorn.'
The company's broker, CanaccordGenuity chimes in this morning with a note titled, 'Increasing the opportunity,' so you know straight-off where its' analysts stand.
'To be clear, Nanoco had the right to stick with the original agreement with Dow, but has chosen to move to a non-exclusive contract because the board believes that this will significantly de-risk the business model and open up a large number of opportunities to sell its industry leading technology to other partners for display applications, as well as selling its own manufactured products directly,' says number cruncher Paul Morland.
'We understand that Nanoco?s relations with Dow remain very good and the opportunity for Dow to sell quantum dot products to its customers remains undiminished,' he continues, which sounds encouraging, and Morland makes the reasonable point that the US firm has already committed $50 million to its plant in South Korea.
'This decision will not have been taken lightly by the Nanoco board as it will have far reaching implications for the future of the business in the display market,' adds Morland. And that's the point, because there are huge implications for the previous forecast revenue, profits model.
Nanoco will see its royalty rates on Dow sales of cadmium-free quantum dot products slashed, perhaps by as much as 50%, and will not receive earn-out income from Dow based on 50 million unit milestones. The company clearly hopes that a near-term squeeze on sales will payout-off down the line, but that's just another layer of spread on this notoriously jam tomorrow story.
Whether or not Nanoco is making the right call I couldn't say with any certainty, but consider this. Back in March 2013 analysts where anticipating full year 2013 revenues of around £4 million, and as much as £100 million-plus by 2017, if all went to plan.
After today's estimates rethink Canaccord now reckons the company could do £21.7 million in 2017, implying a maiden profit of £2.5 million pre-tax. Canaccord still thinks the shares will get to 150p in time, but that looks an ambitious target from here, and it's still lower than the 190p-odd of three years ago.
