Why Nanoco Group PLC Is Surging Today

Nanoco Group (LSE: NANO) is surging today, over 20% in early trade, after the company revealed that the company’s agreement with The Dow Chemical Company had reached a major inflection point. 

Nanoco is a world leader in the development and manufacture of cadmium-free quantum dots, or in other words, nano-materials for use in the production of lighting. And the company’s announcement today marks a major milestone for the company. 

Dow is Nanoco’s global licensing partner and has started production of the world’s first large-scale, cadmium-free quantum dot manufacturing plant. The plant is capable of supporting the manufacture of “millions of cadmium-free quantum dot televisions and other display applications“.

Construction of the plant is well advanced and commercial production of Nanoco quantum dots is expected to begin in the first half of 2015. 

Commenting on today’s news, Michael Edelman, Chief Executive Officer, said:

“We are delighted that demand for Nanoco’s cadmium-free quantum dots is at a point where Dow will begin construction of a large-scale manufacturing plant in South Korea based on our novel manufacturing process. Under Dow’s brand name TREVISTA™ Quantum Dots, Nanoco’s technology will offer an outstanding quality of colour reproduction and set the standard for quantum dots globally.”

The future’s bright 

The start of plant construction reflects customer demand for Nanoco quantum dots and has triggered a milestone payment from Dow to Nanoco. 

Before today’s news, City analysts weren’t expecting Nanoco to break even for several years. There is a chance that analysts could adjust their forecasts higher following the deal and payment from Dow. 

That being said, Nanoco only reported sales of £700,000 during the first half of the year and an operating loss of £5.1m. So, the company has a long way to go before it breaks even, or becomes profitable. 

Nevertheless, with Dow in its corner, Nanoco should have no trouble finding customers for its quantum dots worldwide. With demand for the product already strong, there’s reason to believe that the company’s sales could jump when Dow’s factory begins production. 

However, only time will tell if the company can turn a profit in the near term. 

Time to buy?

So, should you buy Nanoco following today’s news? Well, the company’s future looks bright but there is still much uncertainty ahead. Hopefully, the company will shed more light on its future prospects when management announces preliminary results for the year ended 31 July 2014 on Tuesday 14 October 2014.

But until Nanoco reports a profit, the company remains a risky bet and may not be suitable for all investors’ portfolios.