The London stock market is carving itself a niche as a first-choice fund-raising centre for 'technology transfer' companies, outfits that exist to help universities and academics, companies and inventors to commercialise their innovations.
After a flurry of floats this year, there is now a cluster of about 10 of these companies, though not all look long-term winners. The theory is that academic institutions have a poor record of exploiting intellectual property, and there is a commercial opportunity in helping them. The technology transfer company's investors get access to a diverse range of new inventions. It's a numbers game, they say. Sooner or later, one of the technologies will turn out to be a blockbuster.
Except there is little evidence that the numbers stack up. The longer a technology transfer company has been around, the worse its track record appears to be. BTG and Generics, which both employ dozens of scientists to turn patents into products, are the classic examples.
One model that does look appealing is that of Utek Corporation, floated here in April but on Nasdaq since 2000. It has taken most of the risk out by allying itself not with inventors but with corporate product developers. It works on contract to them to scan the universities of the UK, Europe, Israel and North America for technologies they need for an urgent project, and typically makes a five-times mark-up on buying the technology and selling it on. Buy.
Investors who bought into Mears Group at its flotation have made their money 25 times over. Mears paints council houses, mends leaky taps, fixes broken windows or does a spot of rewiring. There is about £5bn of such work out there each year, and Mears has grown because more councils have brought in the private sector. Even so, this is not high-margin work, and should not command a sky-high stock market rating. Improved dividend and upgraded earnings forecasts this week will help, but the shares are too high.
Sir Michael Grade, the chairman of the BBC governors, also chairs Pinewood Shepperton, the British film studios business that is desperate to attract more TV production work from programme makers such as, er, the BBC. This happy coincidence will help Pinewood, but it doesn't justify investing in this high-risk company. A year after a flotation aimed at paying down debt, Pinewood has had to agree a new overdraft to avoid breaching banking covenants. Sell.
To many in the City, Ark represents the last flotation for Old Biotech, gotten away after a big marketing push by its brokers in March 2004 but never having seen the issue price since. Most of the value in Ark, which is currently heavily loss making, lies in hopes for Cerepro, a live virus injected into the brain that seems to prolong the life of people who have had a tumour out. It could be on sale in Europe in 2007, but it is new science and risky. Ark has a long list of milestones it could pass in the coming months, all of which could move the shares up in the short term. But for the long term, sell
Whitbread shares have more than doubled over the past five years but looking at its latest trading statement it is hard to see why. Everything the group does is either at a standstill or going backwards with one exception - its Premier Travel Inn budget hotels. Put simply Whitbread is a conglomerate throwback and it needs to focus. A break-up is now the only thing that justifies a share price of 978p. Sell
It all went wrong at once for Avis Europe, the hire car business. US visitors to the UK fell away after the 11 September attacks. The European economy has failed to manage anything other than sluggish growth and corporate customers have kept belts tight. Profits went downhill faster than a hire car with the handbrake off, and Avis was forced into a £110m rights issue this summer. Since then, there have been signs of improvement, but the shares already factor in a recovery and a little bid speculation. Avoid.
Axis-Shield's 2001 splurge on research and development looks like paying off. In both its diagnostics and laboratory divisions, it has new products about to come to market. Both are promising and we missed a trick by advising investors to hold off in 2003. Still, Axis-Shield is at a tricky inflexion point, back in the black but looking pricey given the modest profits expected while the new products are rolled out. With regret, still pass.
The above are recommendations taken from the daily Investment Column.Reuse content