quotedcleantech

By Andrew Hore

Although a few new entrants have joined AIM this year, cleantech companies are still leaving the junior market. Stock markets around the world are becoming tougher places to raise money again, but the problems with the latest company to shun its AIM quotation date back to its flotation and lack of financial progress since, rather than current market conditions.

Fuel cell-based back-up power products developer IdaTech joined AIM in August 2007. At the flotation price of 100p a share, IdaTech was valued at £49.5 million. The flotation raised £17.7 million, at that time equivalent to $36.1 million, which was reduced to £15.5 million ($31.6 million) after expenses. The business was still at an early stage, with limited revenues and large losses.

The first figures IdaTech reported, interims to June 2007, showed revenues declining from $2.04 million to $1.72 million, while the loss rose from $6.07 million to $9.19 million.

The cash outflow from operations was $10.1 million in the six months to end June 2007, at which time the cash balance was $668,000 and borrowings were $3.31 million. Of course, August 2007 saw an additional $36.1 million in the bank following the flotation.

IdaTech has revealed in its latest interims that revenues have increased from $1.91 million to $3.06 million in the six months to June 2011. The pre-tax loss edged down from $13.8 million to $13.6 million, while the cash outflow from operations was $11.5 million.

These figures indicate that, in the four year period since its flotation, IdaTech’s revenues have not even doubled and the loss is much higher. A full year loss of more than $15 million has been forecast.

Since the beginning of 2007, the company’s total cash outflow has been more than $76 million. There was debt of $72 million at the end of June 2011, with $640,000 of cash in the bank. That debt all originates from Investec, which owns 49.1% of IdaTech, making it the largest shareholder – and it is Investec that wants IdaTech to leave AIM.

It is little surprise that such a cash-guzzling business has failed to attract much trading in its shares: there have been only 22 trades in the past twelve months.  A trade of 3,000 shares took place on 6 October, with the previous trade exactly three months earlier. Lack of liquidity is a complaint commonly levelled at AIM, but the location of a company’s listing will not matter if it is not attractive to investors.

Although IdaTech has complained about the poor performance of its share price, it is perhaps surprising that this had fallen by less than 50% from its initial placing price prior to the company’s announcement of its intention to leave AIM. The share price slumped to 15p, valuing IdaTech at £7.85 million, after that news. This is not unusual, since the fact that there will be no market on which to trade the shares in a few weeks’ time will hit any share price.

There is undoubtedly a large potential market for IdaTech’s products in both the off- and on-grid power markets, but it is taking a long time to materialise.

IdaTech has made progress in product development and moved from selling hydrogen-fuelled products to reformer fuel cell systems using its own proprietary liquid fuel technology. However, a technology company can point to any amount of progress it has made, but does not always appreciate that such progress is not enough for an investor. 

The IdaTech story should be studied by any cleantech company planning to join AIM. To be fair to IdaTech’s management, it was made clear when the company floated that it would continue to lose money for a number of years. Back in 2007, that did not appear to have been a problem for investors: these days they would not be as receptive. Any company which is too far away from commercialisation should think again about attempting to join AIM, even when there is initial interest.

Investors may be excited by a new concept, but they will soon become impatient and lose interest if they think that insufficient progress is being made – and that problem is compounded when flotation valuations are too high. An early stage company that does join AIM should not be surprised if its share price gets hits when it disappoints investors.