Derek Pain: 'Jam tomorrow' companies can leave a sour taste

No Pain, No Gain
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The Independent Online

Pursuit Dynamics must be one of the most unfathomable shares on the stock market. In the past five years the price has been below 200p and above 800p. At the time of writing it resides at around 310p, capitalising the heavy loss maker at £232.5m.

Such a price tag makes a nonsense of City valuations, particularly for a jam tomorrow company. Although PDX, as it is often called, offers fascinating glimpses of possible riches, it has spectacularly failed to deliver. And many observers wonder whether it will ever achieve the expected rewards that have so far proved to be tantalisingly out of reach. In the past four years losses have topped £30m. And last month's interim statement offered little, if any, comfort. The half-time deficit doubled to £7.2m, suggesting that this year's red ink will be splashed around even more prominently.

The group's cash burn is remarkably fierce. It is no stranger to replenishing its kitty by raiding the stock market through placings. Last such exercise pulled in £8m as it sold shares at 250p. It has cash of around £4.3m although net assets are a mere 7p a share.

PDX is keen to stress its good intentions. It says it aims to "maximise thinning resources and to protect the environment from the damaging side-effects of resource consumption".

The group is largely banking on technology that speeds up industrial processes, thus reducing costs. It gets paid by results and that has so far meant minuscule revenue. Still, it has signed a succession of deals with a variety of producers, covering such areas as biofuel, beer and food. Naturally, it has high hopes that as its technology is increasingly utilised its income will increase. And a recent deal involving waste to energy tests at Thames Water's Reading plant could be significant. But the array of relationships it has established has still to develop into rewarding commerciality.

The stock market tolerates an array of companies that have little more than stars in their eyes. They include mining and oil ventures, often clutching a piece of paper giving them the right to explore in some remote corner of the world. Some resource groups, after years of endeavour, have yet to produce anything tangible although they continue to soak up cash. Pharmaceutical groups conducting, it is hoped, promising laboratory research also have an insatiable appetite for money. PDX is, therefore, a member of a cash-absorbing stock market army that may or may not reward the faith of shareholders. Certainly PDX, listed on AIM at 50p a share 10 years ago, seems to have little difficulty raising the wherewithal. With its flotation and subsequent placings it has pulled in more than £40m at varying prices. Another cash-raising exercise appears likely fairly soon.

Although it obviously has a band of loyal supporters, some City names are sceptical about its ability to eventually produce substantial rewards. One of the most vociferous critics is Evil Knievil, the famed short seller aka Simon Cawkwell. In his comments on the website he has branded PDX bulls as "loonies".

Of course some companies that arrive on the stock market on little more than a wing and a prayer do, occasionally, achieve remarkable returns.. But others sink into oblivion. Still, when such a venture hits the jackpot shareholders can joyfully roll in luxury. Even so only investors who can afford to suffer losses should be tempted.

The no pain, no gain portfolio likes to stick to companies with at least a degree of asset backing and identifiable business operations. Such caution has, however, not always been rewarded. It is, perhaps, salutary that its one and only exploration excursion was Nighthawk Energy, a company that had an addiction for raising cash through share placings. The investment was a bitter disappointment. The portfolio purchased at 44p a share and the price surged to more than 100p. But then, it could be suggested, reality set in. When the portfolio, belatedly, departed the price was down to 14p. It is now around 5p.

After the Nighthawk experience there is no intention of getting involved in a company such as PDX. But I do wish it well. Perhaps it will be one of the jam tomorrow businesses that does eventually serve up sweet helpings of cheer.

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