I’ve been following darling of the bulletin boards, Versarien (VRS) for some time finding the ever-increasing share price more and more incredulous. I thought I would use the latest results to take a closer look and come up with a considered valuation. In short, this appears to be the in the top 5 most overvalued shares on AIM – get out while the going’s good! With any business, it is best to start with management and that is where much of the value lies it seems to me with this stock, the CEO, Neill Ricketts. In many ways, he is the perfect AIM CEO; he is very active on Twitter and always keen to get news flow out, preferably with no numbers or names included. Let’s be clear though, that aside, I am unable to find any evidence from his track record that he is able to build a profitable business.
Prior to setting up Versarien, he was head of the ventures arm of Elektron Technology (EKT) until he left there and set up Versarien, taking some of the ideas with him - although I note in the results that he appears to have given up on the thermal copper foam that was going to be the company maker back at the beginning. The beauty of running an “advanced engineering materials group” is that you can always go after the next magical golden egg, graphene being the obvious advanced material of choice for now. Again, this makes for a brilliant AIM story. Looking at the numbers, the business states that revenues have increased by 52% to £9 million an and losses before tax have decreased by 27% to £1.6 million. Cash as at 31 March 2018 of £2.3 million. That only tells part of the story though and one needs to break it down into its various parts to try to get a sense of value.
Neill segments the business in two parts. First, there is the Hard Wear and Metallic Products that is predominantly made up of the Total Carbide business that Neill ran at Elektron and that he acquired from it when Versarien came to market in 2013. Total Carbide was acquired for £2.28 million. It is worth noting that in the year to 31 January 2013, Total Carbide had revenues of £3.8 million and profit of £56,000. Interesting to compare that to this year’s revenues of £3.2 million – doesn’t sound like a great growth story to me. The second segment, the Graphene and Plastics Product Division, is a bit of a misnomer as pretty much 100% of the revenue in the year has come from the plastics business acquisition of AAC Cyroma. It was acquired in October 2016 for around £2 million when revenues were £4.27 million. These have now ticked up slightly to £4.6 million. The rest of the report is all about graphene and although revenues are limited, there is plenty of information about the various partnerships. But how much are these words worth? Being generous, I will value the mature businesses at more than double what Neill paid for them, let’s call it £10 million. However, with the current share price still around 127p, that values the graphene side of the business at around £180 million.
The IP for these businesses were acquired for less than £1 million and although there are a whole host of collaborations and partnerships, there is no current evidence of any of these turning into a profitable commercial relationship as yet. Accordingly, at this point, one needs to somehow assess the likelihood of Neill Ricketts translating these deals into cash but I can find nothing in Neill’s past to give me that comfort. Being generous again, I can envisage hope value of say £20-30 million so my conclusion is that I can’t really understand why this share is trading at over 30p! In addition, further funding will no doubt be required by the end of the year. As I said at the top of this piece, Versarien is the darling of the masses for now but unless real traction is generated on the graphene side soon, gravity will prevail as it always does in due course and shorting at anywhere near the current price looks like free money in the medium term to me. I await the bulletin board and Twitter backlash with interest.
Filed under: Versarien, Bearcast, Bango, Optibiotix, Falanx, Easyjet food currency scam
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