Why I think I was wrong about the Versarien share price

After some deliberation, Rupert Hargreaves thinks it is time to buy the Versarien plc (LON: VRS) share price.

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The last time I covered pioneering advanced materials group Versarien (LSE: VRS), I concluded that while the company could be one of the “best ways to invest in the graphene business,” it could be some time before it becomes a sustainable enterprise.

That was back in October of last year. Over the past three months, the company has proven me wrong. In its interim results release for the six months to the end of September, it reported an increase in revenues of 19% to £5.2m and a decrease in losses before interest tax depreciation and amortisation of 16% to just under £0.4m.

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Following a fundraising at the end of September, the company ended the first half of its financial year with £6.1m of cash in the bank, which at the current rate of losses (£800k every six months after including the cost of investments) is enough to sustain it for three years according to my conservative calculations.

A make or break year

Even though my figures suggest that the company has enough money to keep the lights on through 2021, this year is set to be a make or break one for the Versarien share price. 

I think the key here is China. Over the past four months, management has been in intensive discussions with a number of Chinese Partners and has already secured partnerships with some leading manufacturers across sectors, and formal relationships have been secured with Chinese provincial government bodies.

In other words, the group has put in the foundations for growth in China and now all it has to do is to build on these relationships.

Management is hopeful that 2019 will yield positive results on this front. “We are confident that we can make rapid progress this year with the commercialisation of graphene-enhanced products both in China and globally with our partners,” CEO Neill Ricketts declares in a trading update published earlier today.

Growth expectations

These are not the only collaboration efforts the company has been pursuing over the past 12 months. As my colleague Paul Summers recently noted, the group signed no fewer than nine collaboration agreements during the six months to the end of September, including formalising plans to build a manufacturing centre with a Chinese partner in Shandong Province.

As Paul goes on to note in his article, Versarien is “very much about the future,” and so far, investors have been willing to give the business the benefit of the doubt thanks to the progress it has made signing deals around the world. However, the company’s market capitalisation of just over £200m does not leave much room for error. Investors are expecting big things here, and there’s a lot of pressure for management to execute successfully in 2019. 

If 2019 is another successful year for the group, then I can see the shares heading much higher from current levels. On the other hand, if momentum stalls, the Versarian share price could stagnate or even fall.

Considering what it achieved in 2018, I’m confident that it can replicate the success in 2019 and that’s why I think I was wrong about the firm’s share price.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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