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BIG PICTURE - Amphion Innovations has high hopes for partner Kromek

Amphion Innovations is advancing on several fronts and has particularly great hopes for partner company Kromek, which it expects to significantly grow in value
BIG PICTURE - Amphion Innovations has high hopes for partner Kromek

Amphion Innovations (LON:AMP) is advancing on several fronts and has particularly great hopes for partner company Kromek, which it expects to significantly grow in value.

Amphion has lots of irons in the fire but essentially its business model is simple - it has stakes in seven companies and the goal is to support and develop their value. By default Amphion grows its value at the same time.  

In Kromek, a pioneering imaging company, it has an 11.6% stake worth £6.2 million - so we're talking big numbers here.

The financing agreement, announced today, in the form of a new US$2 million share-backed loan from an institutional lender, Amphion says, will allow it to advance these partner companies and its long-running intellectual property (IP)  licensing programme.

It comes after a set-back in March this year, when Kromek, which only floated on AIM in October 2013, said revenues for its year to end April would be "significantly below the market's expectations" causing the firm's shares and thus its value to plummet.

It blamed delays in a number of large contracts and timing issues for the missed forecasts.

Richard Morgan, Amphion's chief executive and Kromek chairman, told Proactive Investors it was fundamentally a matter of "slippage" and not  altogether surprising that forecasting at Kromek had gone awry.

"It's quite hard to get the forecasting right when growing so rapidly off such a small base," he said, also pointing to Kromek’s limited experience of some of the markets it operated in, and he added that it was not surprising that the stock market reacted negatively to the announcement.  

However, Morgan suggested the next announcement just a week after the trading statement of a long term contract with a Chinese manufacturer of x-ray diagnostics equipment, told a different story.

That deal provides for revenues of US$1.4 million and US$10.2 million in years 2014-15 and 2015-16 respectively and the overall value of the contract over the next seven years is up to US$159 million.

Meanwhile, research group Equity Development noted recently that the group had won a "plethora" of orders since listing amounting to £8 million in the first half of 2014 alone.

The key factor, reckons Morgan, is whether the Kromek platform is working, and all signs clearly point to the fact that it is.

"I think the value of Kromek's technology platform is incredibly strong and much underappreciated by the market," he said, adding he expected to see the holding be of considerable value to Amphion in a year or two.

Elsewhere, a key strand of Amphion's story, is its IP licensing  programme, managed by subsidiary DataTern.

There are currently 19 separate defendants in separate cases where Amphion is taking legal action against patent infringement.

And there was a boost in April, when DataTern received what it called a "good ruling" in the US Appeals court in proceedings involving giants SAP and Microsoft, which should help revive the momentum of the programme, which has been running for seven years. 

The loan financing allows the firm access to capital to keep such programmes going and it is the type of financing which, rather than an equity raise, is less dilutive to shareholders.

It can be paid back in cash or Amphion or Kromek shares and as Morgan said in the announcement, the firm hopes not to lose any Kromek shares.

"We believe the very bright future of the company (Kromek) should be reflected in a much higher valuation in due course.  Amphion currently has some exciting developments underway, but in order to support our partner companies and progress our IP licensing programme we need access to additional capital.  

"This new financing will help Amphion to bring those developments to fruition.  I look forward to being able to report progress in the coming months and we believe that should allow us to retain our entire holding in Kromek."

So the Amphion story remains a multi-faceted one and looks set to have many promising developments in the not too distant future.

Amphion shares are unchanged today at 2.635p.

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