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Nanoco Group Plc’s new Dow deal opens opportunity, but also uncertainty

The maker of quantum dots - nanoscale materials used in new generation TVs - warned near term revenues would fall due to new non-exclusive arrangements with Dow Chemical Company, but the deal also promises more control and opportunity.
Nanoco Group Plc’s new Dow deal opens opportunity, but also uncertainty
Nanoco can now seek new partners and direct sales for itself.

Nanoco Group Plc (LON:NANO) shares slumped 10% on Thursday as the quantum dots specialist’s newly revised arrangement with Dow Chemical Company threatened near term revenues.

Dow will no longer have exclusivity over Nanoco’s quantum dot technology for display applications. The new deal sees Nanoco receive lower royalties, but, the company says it will also allow it to maximise the roll out of its technology.

“It is anticipated that Nanoco's revenues in the current financial year will be lower than previously expected as a result of this new agreement,” it said in a stock market statement. “However, the Company anticipates that it will lead to higher revenues in future years.”

Nanoco says it will now have greater control over the commercialisation of its intellectual property. It intends to seek additional partnerships as well as manufacturing and selling quantum dot products of its own.

Such orders would be serviced from Nanoco’s facilities in Runcorn, in North West England.

It is, according to Nanoco, a very exciting time for the company to be taking this strategic step as it highlight that cadmium-free quantum dots (the kind it manufactures) will be at the centre of a major emerging industry segment in consumer electronics.

The company highlighted industry research which forecast some 18.7mlm televisions based on quantum dot technology will be shipped in 2018.

Michael Edelman, Nanoco chief executive, described the new Dow arrangement as a ‘very significant development’ for the company.

He said: "We now have a multifaceted strategy in display in which we have a non-exclusive licence agreement with Dow along with the opportunity to form new partnerships and to work independently.”

Janardan Menon, analyst at Liberum Capital, highlighted that the route to market via Dow is taking longer than expected, although he also points out the Dow is expected to remain a key partner for Nanoco.

Menon also highlights that Nanoco’s new opportunity also comes with uncertainty.

“Though the near term sales outlook is weaker following the change to the license agreement with Dow, the longer term outlook could be brighter than it was under an exclusive agreement,” the analyst said in a note.

“This mainly depends on the speed with which Nanoco will be able to sign up new partners and address customer opportunities in markets like China, Taiwan, Japan and the US.”

Menon added: “The change in agreement also makes Nanoco a potentially more appealing M&A target in our opinion, than it was under an exclusive supply relationship with Dow.

“As Samsung's success with quantum dot TVs shows, the market potential is huge and Nanoco remains well positioned with its cadmium-free technology.

“Execution remains key and the use of multiple partners is likely to speed up execution, compared to the past.”

Nanoco confirmed in today’s statement that the new arrangement would not impact upon the commercial production of Dow’s TREVISTA™ cadmium-free quantum dots at Dow's large scale quantum dot facility in Cheonan, South Korea.

Currently, Dow’s facility is supplying sample materials to potential customers.

Andrew Lee, Dow Display Technologies global business director, said: "Nanoco's cadmium-free quantum dot technology continues to fit well with what our customers want and with our desire to develop products and services that are more sustainable for the future."

"We are pleased that we can bring consistent, reliable, high-volume supply of our TREVISTA™ quantum dots based on Nanoco's cadmium-free technology to the market."

Nanoco's London premium market listed shares were down 4.75p, 10.3%, by 13:00 on Thursday. At that level the group was worth just under £100mln.

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