Nanalyze

Applied Graphene Materials Needs Sales

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Earlier this week, Applied Graphene Materials (LON:AGM) filed their interim results for the six months ended 31 January 2014. Presently, AGM’s shares are at $8.06 per share nearing their all-time high of $8.54 per share giving the company a market cap of $135 million. The company had insignificant revenues during this period of $2,535 compared to $7,875 in the same period the year prior. AGM had a loss before tax of $2 million (2013: loss of $.66 million for same period) which included exceptional costs connected to the admission to AIM of $.65 million. Following the completion of the share offering, AGM has cash on hand of $16.4 million. AGM used $1.4 million cash in operating costs for this period. At that burn rate and with all things remaining the same, their cash on hand of $16.4 million would allow them to survive for 5.9 years.

According to the IPO admission document from November 2013, the company had just 10 employees (4 operations, 4 management, 2 administration). One of the reasons for the low number of employees is that research is contracted out. For the year ended July 2013, 55% of aggregated administrative costs were attributed to “subcontract research costs”.  AGM anticipates that their headcount will have doubled by the end of the financial year in July 2014.

Since admission of their IPO, AGM stated that “two customers who had previously taken trial quantities of material and with whom we have in place established collaboration agreements, have requested additional material supplies.” Given the company has almost no revenues from selling graphene, adoption by their partners is to be expected otherwise the company has no prospects. The IPO has generated interest though, and since then, AGM has added a further six new development partners with several others currently in the pipeline. Their current list of partners can be seen below:

Source: Appplied Graphene Materials Presentation

Source: Appplied Graphene Materials Presentation

According to a report by Future Markets, total volume demand for graphene is expected to increase from around 80 tons in 2013 to around 400 tons in 2017. If demand does increase that much, customers will be more likely to work with higher volume suppliers who can match the growing demand. As we recall from our previous article on AGM, the Company can produce one ton per year of graphene nanoplatelets with plans to expand capacity in line with demand over the next 2-3 years to 8 tons per year. If demand supports even more capacity, AGM intends to develop a much larger 30-50 ton per year production unit which may require the need to raise additional capital. In the meantime, Vorbeck is producing graphene ink in the 40-ton capacity now. Angstron’s annual production volume is 300 metric tons per year with plans to expand capacity to 1300 metric tons per year by Q4 of 2015. XG Sciences is producing  80 tons per year of graphene nanoplatelets and generated $4 million in revenue in 2012 from 600 customers. AGM will need to show their graphene is superior and can command a much higher price or scale more quickly to keep up with the competition.

As discussed previously, the process used by AGM to create graphene uses a sustainable, readily available, organic feedstock, not graphite itself.  AGM claims that the differing characteristics of these unique graphene nanoplatelets mean there is currently a low risk of substitution for alternative sources of graphene by their commercial partners. If this is, in fact, the case, then we should see some sort of validation in the form of prototype product development, increased revenues from licensing, or increased revenues from the sale of graphene. Applied Graphene Materials (LON:AGM) can only provide samples for so long before investors will begin to question the commercial viability of AGM’s unique graphene nanoplatelets.

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