Last week, the VRS share price once again surged by over 20% within 24 hours. Seeing this level of volatility in young public businesses is not uncommon. But what caused this sudden growth? And should I be considering Versarien for my portfolio as a long-term investment?

Last week’s explosive growth

I’ve explored Versarien’s business before. But as a quick reminder, it’s a specialist materials manufacturer for the industrial sector. Operating through eight subsidiaries, it develops and commercialises new materials used throughout multiple industries, including aerospace, energy, and electronics.

A few months ago, the management team completed an acquisition in South Korea to expand the firm’s production portfolio to include graphene-based materials. It seems this decision was quite prudent. Why? Because last week, Versarien announced it had signed a series of agreements with another South Korean graphene company called Graphene Lab Co. This appears to be the main catalyst behind the surge in the VRS share price. So what do these agreements entail?

Firstly, Graphene Lab can now utilise 14 patents from the previously mentioned acquisition to develop their own products. In exchange, Versarien will receive a 5% royalty fee on each resulting product sale. Furthermore, Graphene Lab can also use certain trademarks owned by Versarien in exchange for a 2% royalty fee. These are hardly impressive percentages. But it does mean that the firm has just gained another much-needed revenue source, with no operational expenses involved.

However, these royalty agreements are not the end of the story. Graphene Lab has also purchased a 15% stake in Versarien’s South Korean subsidiary, consequently flooding the balance sheet with an additional £1.93m of cash. With a nice boost of liquidity to hand and two new expense-free revenue streams, I’m not surprised to see the VRS share price take off.

The Versarien (VRS) share price has its risks

Despite the promising progress Versarien’s management team has made, this business is far from risk-free. The firm is still unprofitable with no clear timetable as to when that might change. Therefore, it remains largely dependent on outsiders to raise additional capital. This latest share deal with Graphene Lab certainly provides some nice liquidity. But that money will likely run out before Versarien’s bottom line turns positive.

The volatility of the VRS share price is also a bit of a concern. Investors’ expectations surrounding young companies can often lead to absurd valuations. Looking at its peak in January this year, the market capitalisation of Versarian reached around £140m despite only generating £8.3m in gross revenue. Today the business is priced at about £75m, which is certainly more reasonable but still carries a high level of investor expectations. Needless to say, if the business fails to deliver, the VRS share price could fall once again.

Overall, Versarien looks like a promising company. Having said that, I still think it’s too soon to invest. Therefore it’s staying on my watch list for now.

The post Why did the Versarien (VRS) share price jump last week? appeared first on The Motley Fool UK.

Is this an opportunity to buy the stock at a discounted price? And should I be adding the business to my portfolio? Let’s take a look.

An engineering research house

Versarien is an engineering materials business. It owns and operates eight subsidiaries specialising in developing and commercialising new materials. Its combined expertise lies primarily in graphene, plastics, and metals. Its proprietary technologies and developed products have proven to be essential across many sectors, including electronics, aerospace, energy, and industrial engineering.

Covid-19 has caused multiple disruptions across all these sectors as well as Versarien’s own research projects. Consequently, the firm reported its biggest loss since its IPO in 2013, which likely triggered the drop in the share price.

In January this year, Versarien’s share price looked like it was on the road to recovery. Unfortunately, the rise was short-lived. And once again, it began to fall following the publication of another report. Losses have continued to expand while revenues decline.

However, there were some promising trends. Graphene product sales significantly increased thanks to the successful launch of its specialised facemasks. And it also began working on a new engineering project with Rolls-Royce. Could this be a sign that the worse has passed?

Risks to consider

Covid-19 has undoubtedly wreaked havoc on the business. However, from what I can tell, the collapsing share price appears to be due to over-valuation rather than any underlying problems with the company. The increasing losses are bad, but the cause is temporary. And with plenty of cash on the balance sheet, I don’t think it’s in any immediate financial danger. 

Meanwhile, in 2019, the Versarien share price was trading as high as 132.5p. That’s roughly a market capitalisation of £205m despite being unprofitable and only generating £9m in revenue that year. Today’s the company is valued closer to £70m, which still seems expensive but not as ludicrous. At least that’s what I think.

It’s also worth noting that it is currently unclear when Versarien will become profitable. And so the firm is and will remain dependent on outsiders to raise additional capital. So far, this has been achieved through a mixture of debt and equity issues. However, these may not be available in the future, and the latter appears to be creating a dilution effect. After all, the shares outstanding have increased by 60% over the past five years.

Versarien share price: time to buy?

Operating within the engineering industry is tough. The constant technological innovation and vast competition can often lead to companies becoming obsolete or superseded by rivals. However, Versarien’s ability to attract and retain industry veterans partners like Rolls-Royce, as well as expand its offerings into the Chinese markets, is encouraging.

Personally, I think it’s still too soon to invest. Therefore I’m not going to buy any Versarien shares for my portfolio today. But I will be keeping a close eye on how it performs in the future.

The post Will the Versarien share price recover in 2021? appeared first on The Motley Fool UK.

One arch-bull reckons Tesla’s share price could hit $7,000 within the next five years. In contrast, fundamentals-focused bears argue the stock is already grossly overvalued at $900. Some suggest it’s the best shorting opportunity in a generation.

As a value investor at heart, I certainly wouldn’t touch Tesla with a bargepole. And there are some UK stocks I’d similarly avoid. Here are three.

Bonkers

Baillie Gifford, which manages FTSE 100-listed Scottish Mortgage Investment Trust (LSE: SMT), owns 7.5% of Tesla. It’s the second-largest shareholder after Tesla founder Elon Musk. Scottish Mortgage also counts the likes of biotech firm Illumina, streaming platform Netflix, and Chinese e-commerce group Alibaba among its largest holdings.

Many of the stocks trade at bonkers valuations, according to the principles of classic Benjamin Graham/Warren Buffett-style value investing. However, owning such stocks has paid off big-time for Scottish Mortgage. Its shareholders have enjoyed a return of 602% over the last 10 years.

At a current price of 652.5p, Scottish Mortgage’s shares are at a 2% premium to net asset value (NAV). The NAV is detached from reality and fundamental value, in my view. And with the shares trading at a premium, I see little margin of safety and considerable downside risk for buyers today.

Nosebleed

I’ve previously expressed my scepticism about the prospects of FTSE AIM-listed IQE (LSE: IQE). This self-styled “leading global supplier” of epi-wafers to the semiconductor industry is valued at £458m at a current share price of 57.5p.

Over two decades, IQE has gone through periods of high investment and heavily negative free cash flow (FCF). However, no real step-change in earnings and FCF has subsequently materialised. Indeed, when the company releases its 2019 results next month, things will have gone backwards.

Management has warned of an operating loss, and year-end net debt of between £15m and £20m, compared with net cash of £21m at the start of the year. Meanwhile, the company is valued at over three times management’s mid-point revenue guidance of £150m. And, looking ahead, at over 100 times analysts’ earnings forecasts for 2020. I’m getting a nosebleed just thinking about how high the valuation is.

Jam tomorrow

Fellow AIM-listed stock Versarien (LSE: VRS) – valued at £79m at a current share price of 51p – is another on my avoid list. Founded in 2013, the company has made six acquisitions.

Three of these (acquired for a total of £4.2m) were generating combined revenue of £11.7m in the year prior to their acquisition. For its latest financial year, Versarien reported total group revenue of £9.1m. As such, I’d find it hard to value the three revenue-generating businesses at much above the £4.2m Versarien paid for them.

This would leave £75m of Versarien’s market value attributable to the three non-revenue-generating acquisitions: 2-DTech (acquired for £0.4m), Cambridge Graphene (£0.2m), and Gnanomat (£2.6m). Commercial deals for these businesses’ products have proved persistently elusive, and I just don’t see how they can be worth anywhere near £75m. The promise of jam tomorrow is growing stale, in my view.

The post Forget Tesla! I think the valuations of these FTSE stocks are also bonkers! appeared first on The Motley Fool UK.

In my opinion, this decline was unwarranted.

The only news the company published last month was a trading update ahead of its annual general meeting on 24 September. In the update, Versarian revealed that it was progressing with all its collaborations and activities in China, which shouldn’t have inspired investors to sell.

Specifically, CEO Neill Ricketts said that Versarian, “has continued to make significant progress since the release of our annual results on 17 July 2019, in particular with a number of our collaborations and our activities in China.“

Management is currently spending most of its time with Chinese partners as it wants to conclude a deal in the country as “soon as reasonably possible.“

The primary partner in the region is the Beijing Institute of Graphene Technology Co. Ltd (BIGT). BIGT has helped Versarian set up an office in the country and secure “endorsement and support of provincial Chinese governments” for a joint venture between the two parties.

Upcoming catalyst?

According to the pre-AGM update, BIGT is also working with Versarian in identifying “factory facilities within preferred key strategic provinces.“

And the Institute is committed to helping fund the project as well. It is working towards the purchase of up to 15% of Versarien’s share capital through the issue of new shares.

A deal in China could be the catalyst that wakes up the Versarien share price, but the environment is not getting any easier for the group. The trade war between China and the US is causing some severe friction in the global economy, and there is also a risk that the US might look to limit outside investment in China. It is not clear how policymakers would do this, but any efforts to curtail Western investment into China are likely to have a knock-on effect on Versarian’s progress.

With this being the case, even though shares in the graphene company look cheaper today than they were a month ago, I don’t think the stock is a ‘buy’ right now.

Wait and see

Versarien is still in its early stages of growth, and the company has a long way to go before it is self-sustaining. In the meantime, it will rely on third parties to provide the funding to keep the lights on. Any major setback either with the firm’s own growth plans or with a US-China trade deal might inspire backers to pull funding. That could be a big headache for the group.

That being said, if the company does manage to ink a manufacturing and distribution agreement for graphene in China, then the sky could be the limit for Versarian.

However, with so much uncertainty shrouding its outlook at this point, I think it might be better to stand on the sidelines and wait for more clarity before taking a position.

There are plenty of other small caps out there with much brighter prospects in the meantime.

The post Why the Versarian (VRS) share price fell 20% in September appeared first on The Motley Fool UK.

Back then, the share price was at 84p. You could say I made a duff call because the stock went as high as 185p by September 2018 and now sits at 115p as I write. However, I was worried about the firm’s finances back then, and I still am. On top of that, even if City analysts’ predictions come true for profits down the road, we could be looking at an eye-wateringly high valuation at the current level of the share price.

A great story, naturally

Naturally, the company has a great story. How else would it have attracted such speculation from investors? It operates with the two divisions of Graphene & Plastics, and Hard Wear & Metallic Products. Graphene, in particular, is known for its potential to disrupt a number of established industries, and a series of collaboration agreements appear to have whipped up speculation about the firm’s future into a froth of exuberance that has driven the share price skywards.

But the financial reality tends to knock off the old rose-tinted spectacles. Today’s full-year results report to 31 March reveals that revenue came in essentially flat compared to the year before at just over £9m. I find that worrying. The firm has spent a whole year investing, trading and presumably selling its story and products, only to stand still with the revenue result.

And it gets worse. The loss before tax increased by 75% to £2.8m. In terms of building a financially viable business, Versarien appears to be going backwards. Meanwhile, we get a sense of the way the stock market is over-valuing the company by comparing the circa £9m revenue figure with the firm’s market capitalisation, which runs close to £179m.

A nose-bleed valuation

Looking forward, City analysts following the firm are optimistic that Versarien can swing from loss to profit. Some have pencilled in earnings of around 1p per share for the current trading year to March 2020. But even if the firm achieves that, the current share price puts the forward-looking earnings multiple at about 115. If you are buying the shares now, you must be expecting a rapid acceleration in earnings in the years ahead.

And Versarien is making all the right noises. Chief executive Neill Ricketts said in today’s report that the year had been one of “great progress… particularly in our emerging technologies businesses, globally and in the UK.” He explained that the firm’s graphene businesses have expanded into global markets “and progress is being seen in our existing collaborations, as well as new collaborations being entered into.”

But I’m sceptical. Before we see a rapid escalation of revenue and earnings, I reckon we are likely to see a rapid contraction of the share price and valuation to adjust to the slow realities of building up new businesses from scratch. I’m avoiding the stock for the time being.

The post This hot stock could shoot the lights out. Here’s why I’m avoiding it like the plague appeared first on The Motley Fool UK.

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.

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.

The post Why I think I was wrong about the Versarien share price appeared first on The Motley Fool UK.

One company that has served early investors — including myself — particularly well over the last year or so has been advanced materials engineer Versarien (LSE: VRS).

Based on today’s interim report, I’m in no hurry to sell just yet.

Collaboration crazy

Befitting its high-growth credentials and need for ongoing investment, Versarien reported a pre-tax loss of £0.7m over the six months to the end of September, despite revenue increasing 19% to £5.22m. Nevertheless, it’s the operational progress made by the company that’s of more interest to the market right now. 

Continuing a trend that began roughly one year ago, Versarien inked nine new collaboration agreements over the reporting period, as well as capturing the services of Matt Walker and Pete Jay from the Department of International Trade to spearhead the company’s international ambitions.

Highlights since September include the purchase of a controlling stake in Spanish company Gnanomat and the Memorandum of Understanding signings with three Chinese firms — one of which relates to plans to build a manufacturing centre in Shandong Province.

Reflecting on the latter, CEO Neill Ricketts stated that the company’s expansion into China has “attracted a large number of suitors” and that Versarien intended to replicate the process “in other Asian territories“.  These developments, when combined with the £5.15m raised back in September, leaves the company “extremely well positioned for the future“, Mr Ricketts added. 

And Versarien is very much about the future. To be clear, a substantial proportion of the company’s current valuation is based on the potential for graphene to revolutionise our world. As such, it’s therefore absolutely vital that at least some of the firm’s many ongoing collaborations lead to substantial orders to justify the already-lofty market capitalisation of £175m. On this front, things are looking positive. 

Last month, it received an order for 1kg of Nanene — its patented graphene nano platelets — from a major global airline with the intention of using the product in fire-retardant aircraft interior parts. Encouragingly, more orders are “anticipated“.

But there’s more. Today, Versarien also announced that US engineering giant AECOM had placed an order for 50kg of graphene-enhanced polymer material with another 200kg order likely in early January. Should final testing be successful, the next bit of news relating to this project could be very significant indeed. 

Bottom line

Clearly, there’s still a long way to go for the Cheltenham-based business to silence its doubters. Nevertheless, if you believe (as I do) that the mass-market adoption of graphene is only a matter of time, then it is arguably the best horse to back. The fact that its stock still trading almost 40% below the high of 187p achieved almost three months ago suggests that now might be as good a time as any to begin building a position.

If — and it is a sizeable ‘if’ — Versarien is able to capitalise on its pole position in the commercialisation of the wonder material, then I maintain it could help some investors reach financial independence far earlier than they ever imagined.

The post Why I think small-cap growth stock Versarien could still help you achieve financial independence appeared first on The Motley Fool UK.

Shares such as Aviva (LSE: AV) have come under pressure, with the FTSE 100 insurer recording a decline in its market valuation of 23% since May. Could this mean that it’s heading back to the 300p level last seen in 2013? Or could it be worth buying alongside a relatively risky small-cap which released an update on Monday?

Uncertain prospects?

The smaller company in question is advanced materials engineering group Versarien (LSE: VRS). It reported an update on its activities in China, where it’s seeking to develop its relationships within the world’s second-largest economy. It has made progress in establishing the ‘China-UK Jinan Graphene Industrial Park’, where detailed discussions with the various parties in Jinan are progressing.

It has also signed a Framework Agreement with the Qingdao Municipal Bureau of Commerce. It covers cooperation between the parties in the fields of graphene research, development and industrialisation. The company remains conscious of the need to protect its intellectual property, while also seeking to establish formal relationships with the appropriate parties.

With the Versarien share price having fallen by around 27% in less than two months, it’s clearly a highly-volatile share with an uncertain outlook. However, with the potential to deliver strong financial performance in the long term, I feel it may be of interest to less risk-averse investors.

Recovery potential?

The fall in the Aviva share price is, of course, disappointing for investors in the stock. With the business now without a permanent CEO following the recent resignation of Mark Wilson, its near-term prospects may be relatively uncertain. However, the company is in a much stronger position than it was in 2013, which means that a decline to 300p from its current share price of 430p seems unlikely.

The insurer has been able to strengthen its asset base in recent years so that it’s now highly profitable, efficient and has exposure to a wide range of markets where the risk/reward opportunity seems to be favourable. And since the stock has a price-to-earnings (P/E) ratio of around 7.5, it seems to already include a margin of safety, given its earnings growth outlook over the next couple of years.

In terms of Aviva’s growth prospects, the company is due to report a rise in net profit of 8% next year. Its financial strength was highlighted recently by its decision to utilise up to £3bn of excess capital to make acquisitions, reduce leverage, and commence a share buyback. As such, it seems to be in a strong position to deliver further growth under a new CEO. In fact, further share price falls in the near term could make it even more appealing from a long-term investment perspective, I believe.

The post Is FTSE 100-member Aviva’s share price heading back to 300p? appeared first on The Motley Fool UK.

There’s been no shortage of positive news from the company so far this year. Over the last couple of months, the enterprise has revealed agreements with audio equipment firm Media Devil, and an unnamed global sports and fashion goods manufacturer. On top of these two significant deals, more recently it has begun collaborating with South Korean-based AXIA Materials, on developing “smart graphene devices” for the buildings and electric vehicles market.

Today, the company has announced yet another collaboration agreement with Advanced Insulation Limited, a leading supplier of advanced construction materials for the oil and gas industry. The first project the partners are planning to work on is incorporating Versarien’s proprietary graphene technology “into sub-sea insulation materials, with a view to improving their tear resistance and reducing water absorption.“

Blue sky potential 

As it signs deal after deal, Versarien is proving to be a hugely rewarding investment for those early to the party. Over the past 12 months, the stock has added nearly 1,000%. Year-to-date, it has gained a more modest, but still impressive, 152%.

And some analysts believe that this could be just the beginning of Versarien’s growth. The wave of deals the company has inked seems to justify this opinion and management certainly seems optimistic about the future. According to CEO Neill Ricketts, there now exists a “global demand” for Versarien’s products.

However, while I cannot deny that Versarien looks to be one of the best ways to invest in the graphene business, I’m sceptical that it will be plain sailing for the firm from here on out. Agreements are one thing, but getting cold, hard cash in the bank is something different altogether. It could be some time before Versarien becomes a sustainable business. In the meantime, finding the money to keep the lights will be a primary concern for the business.

Investor support 

So far, investors have been more than happy to support the group through these early stages. A recent fundraising on the PrimaryBid platform attracted far more interest than management was initially expecting. Even after increasing the size of the offer, it was still oversubscribed and closed early having raised a total of £5.2m.

As long as investor sentiment towards the business remains this positive, I see no reason to believe that Versarien will run into any problems. However, market sentiment can be fickle, and the number of companies that have collapsed after running out of money and losing investor support is frighteningly high.

With this being the case, I’m not ready to go all in just yet. I’m cautiously optimistic about the outlook for Versarien, but I’d like to see self-sustainability before rating it a ‘buy’.

The post Think Versarien’s share price is a bargain? Read this now appeared first on The Motley Fool UK.

Today I want to take a closer look at Versarien and another hot growth stock, North Sea oil driller Hurricane Energy (LSE: HUR). Both are trading close to record highs. But do they still deserve a buy rating?

High hopes for graphene

Like most investors, I don’t have the technical knowledge needed to reach an expert verdict on Nanene, Versarien’s graphene-based material.

It sounds impressive, but the company hasn’t yet made any money from it. Although the Cheltenham firm is working on a number of R&D projects, it admitted in July that these collaborations “have yet to produce revenues of any material amount”.

However, I do know something about the firm’s financial situation and its valuation, both of which are key considerations for equity investors.

Is the price right?

Versarien is made up of a mix of mature and early stage businesses. Last year, the group generated total sales of £9m, with a pre-tax loss of £1.6m. According to results for the year to 31 March, the group had net assets of £8m at that time.

Given this performance, the £180m market cap looks very high to me. Paying 20 times sales and 22 times net asset value for a lossmaking company isn’t my idea of a good investment.

Even if growth is explosive, I think it would take several years to justify the current share price. In my view, this business is seriously overvalued. I’d take profits and sell.

Like a Hurricane

I don’t generally invest in oil explorers which don’t also have substantial production revenues. But I might make an exception for Hurricane Energy.

This North Sea firm specialises in extracting oil from naturally fractured basement reservoirs — a type of rock formation. It’s less than a year away from starting production at its Lancaster field.

Planned production of 17,000 barrels of oil per day should provide some useful cash flow. But what’s really exciting is that this development is expected to provide the evidence needed to support large-scale development of the company’s Rona Ridge assets.

A triple bagger?

Hurricane only has 62.1m barrels of proven and probable (2P) commercial reserves at the moment. But the group has almost 2.6bn barrels of so-called 2C resources. These represent oil resources that have been discovered, but aren’t yet ready for commercial production.

The Lancaster Early Production System is intended to provide some of the information that’s needed to convert these resources into commercial reserves. Founder Dr Robert Trice expects a much larger partner to get involved in the business when this happens. For shareholders, the result could be a tidy takeover offer.

For example, an offer valuing 1bn barrels of oil at $4 per barrel would be worth about £3.1bn, or 157p per share. That’s three times today’s 50p share price.

Buy and forget

There’s no guarantee of success. But Dr Trice has delivered exactly what he promised so far. He’s also maintained 100% ownership of Hurricane’s oil fields, to preserve the potential upside for shareholders.

In my view, this stock could deliver impressive profits for investors. I’d view this as a stock to buy today and tuck away for a few years.

The post Why I’d shun the Versarien share price and buy Hurricane Energy appeared first on The Motley Fool UK.