One For The Brave

Published in Company Comment on 29 June 2010

Pursuit Dynamics holds a clutch of juicy patents. But can it make money?

I'm never encouraged when a company's annual or interim results begin with the operational highlights, rather than the financial highlights. I like to read about revenues, profits, dividends and cash reserves -- and not about the minutiae of what a company has been doing in the preceding six or twelve months.

Sure enough, the operational highlights that began today's interim results from AIM-listed Pursuit Dynamics (LSE: PDX) presaged some fairly dire financial results.

Revenues are significantly up -- to £79,080. Yes, you read that correctly. Pre-tax losses are up, too, from £3.1 million in the six months ending 31 March 2009 to £3.6 million in the six months ending 31 March 2010.

And, post-close, the company has once again tapped the market for further equity, placing four million shares at £2.50 each in early May. It last asked shareholders for funds in September 2009, when it received a cash injection of £4 million gross.

That said, it could be worse: it's only down to "continuing strong controls over expenditure, despite increased investments in the business since the arrival of the new CEO" that losses weren't actually higher.

Patented technology

£170 million market cap Pursuit Dynamics is a company floated on the Stock Exchange in 2001 to exploit a patented PDX reactor and atomising technology, which finds applications in areas as diverse as brewing, fire suppression, decontamination and bio-fuels.

Various initiatives -- pilot plants, licensing deals, and joint ventures -- are underway to turn these opportunities into profitable revenue streams. Post-period end, for instance, the company signed an agreement to enter into a joint venture with a subsidiary of Germany's Alfred Kaercher GmbH, the world's leading manufacturer of high‑pressure cleaning equipment. The plan, it seems, is to jointly develop civilian and military decontamination and disinfection products for a global market.

Similarly, the company is also working with America's Tyco in the fire suppression line of business, and with Brewing Research International on the brewing side.

In respect of bio-fuels, the PDX technology boosts the yield of the ethanol production process, with the company's patented reactor tower injecting steam at supersonic speed into corn slurry, extracting traditionally inaccessible starch through extreme agitation and the shearing impact of the condensation shock wave. From fewer raw materials, more ethanol emerges -- which has to be a saleable proposition, one would have thought.

As is often the case with these things, in short, the story is a good one -- it's the financials that give cause for concern.

Is it a buy?

That said, the period end cash holding of £3.7 million has now been supplemented by the proceeds of the May fund raising, so there should be enough money in the bank to fund the business for another two years, even if it doesn't earn another penny in revenues.

And while that's not quite the "foreseeable future" that the chief executive glibly speaks of, it is a significant interval of time -- enough for positive developments on the revenue front to make a decent dent in those awful operating losses.

In short, the noises are encouraging, but Pursuit Dynamics is certainly not a share for me -- and wouldn't have been, even when I was twenty years younger: there are simply too many risks involved.

Someone could well make a lot of money from the company's clever technology, I accept. But it won't be me, I'm afraid.

More from Malcolm Wheatley:

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