Quantum dots technology developer Nanoco (NANO:AIM) is close to moving into the television production phase. This could spark investors into action and drive the shares substantially above current 86.75p levels, an 18-month low.

The Manchester University spin-out has been working on phase three of a development deal with its unnamed South Korean partner, first signed in May 2013, which sees the pair concentrate on commercial elements of the production process. This work was due to complete during July, implying initial unit production could begin very soon.

Quantum dots are tiny, fluorescent semiconductors used to make next generation electronics. Nanoco’s intellectual property-protected manufacturing method avoids using cadmium, a heavy metal that is banned in the European Union because of its potentially toxic effects. The company’s trademarked NanoDot technology is being piloted in several applications, including solid state lighting, solar panels, even some medical devices, but it is digital displays where volume production will come first.

Next generation connected TVs use the OLED (organic light emitting diode) technology containing quantum dots, while smartphones, laptops and tablets are also on the agenda.

A demonstration at Nanoco’s Runcorn manufacturing site sparked rave reviews of the display quality. ‘We saw a compelling product demo where two Apple iMacs were presented side-by-side,’ explain analysts at CanaccordGenuity, with one retro-fitted with a quantum dots display. ‘This was real tangible evidence for the audience that quantum dot displays have a superior colour quality,’ say Arun George and Bob Liao, who also highlight Apple’s (AAPL:NDQ) ‘gorgeous iMac display’ key feature marketing.

NANOCO GROUP - Comparison Line Chart (Rebased to first)

Nanoco was dealt a blow in March as key manufacturing partner, the US’s Dow Chemical (DOW:NYSE), revealed that completion of its planned quantum dot manufacturing facility in South Korea had slipped six months to early 2015. Yet Nanoco reiterated its belief that the first TVs using its quantum dot technology remain due before the end of this year. Koreans Samsung (005930:KS) and LG Electronics (066570:KS) are seen as likely manufacturing partners, although nothing has yet been confirmed.

The delay to the Dow plant saw analysts slash revenue estimates from £4.1 million for the year to July 2014 to £1.4 million, and £15 million down to £6 million next year. However, analysts’ long-range optimism remains undimmed, with 2016 revenues of £17 million anticipated, sales that will spark Nanoco’s earnings breakthrough to the tune of £6 million pre-tax profit.

Nanoco reported £14.5 million net cash on its books as of January, compared to a cash burn run rate of £4.3 million last year, although a further fundraising cannot be ruled out. Canaccord has a 275p share price target, Liberum’s stands at 260p.

Issue Date: 05 Aug 2014