A Discount-To-Cash Punt For Dragons' Den

Clearspeed Technology (LSE: CSD) caught my attention the other day. The AIM-quoted share slumped 30% after it announced its non-exec chairman, Richard Farleigh of Dragons' Den fame, had spent £50,000 to increase his stake in the group to 14%.

Normally such an investment from such an investor would be seen as good news for shareholders. But Farleigh was buying at 10p per share versus a closing price the day before the announcement of 27p. Clearspeed's price is now 19p, giving it a market cap of £12m.

From what I recall of Farleigh on Dragons' Den, Clearspeed seems to fit his liking for high-risk tech start-ups. The group claims to be a leader in "high performance co-processors" for supercomputers and the chips can apparently "perform more than 37.5 billion high-precision calculations per second, whilst typically using less than ten watts of power".

Sadly, demand for Clearspeed's chips has never really taken off. The firm was created in 1997 and, by 2007, had only managed to report annual sales of £1m. There's been no sign of a profit either, with the latest balance sheet indicating total losses of some £68m having been incurred.

The 2004 flotation raised £10m and since then shareholders have pumped in a further £40m through two placings. I get the impression Clearspeed's chips could be a costly solution still looking for a technical problem.

Nevertheless, Clearspeed's shares have now developed into worthy punt material. You see, the last results showed a balance sheet carrying net cash of almost £20m, equivalent to 31p per share or 63% ahead of the current share price. The obvious problem, however, is that Clearspeed continues to burn money. Last year the firm lost £12m and even with planned cost savings of £4m for 2008, it's possible the cash could run out by 2011 if profitability isn't achieved.

Priced at a sizeable discount to cash, I'm confident Clearspeed at 19p has the potential to multi-bag if the prospect of major sales ever appeared on the horizon. On the other hand, the share may well dwindle to zero as the bank balance runs dry. I suppose anyone interested should, like Farleigh, hold Clearspeed as part of a wider portfolio. Sure it would be more preferable to buy at Farleigh's 10p, but at least today's 19p is some way off the 205p Farleigh paid during one of the aforementioned placings!

Maynard writes Champion Shares, the Fool's share-tipping service. This 30-day free and no-obligation trial to the Champion Shares community gives you complete access to Maynard's favourite shares.

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