CITY TALK : Verity must turn down volume

The spotlight has once again swung back on to Verity Group, the loudspeakers firm pioneering a revolutionary new flat panel technology.

Its shares have continued their ascent of recent months, and rose another five per cent in the last fortnight, to 52.5p. For most of last year, they had trundled along at under 15p.

The latest news to affect the price came last Tuesday when the firm announced a cross-licensing deal with Noise Cancellation Technologies, a company quoted on Nasdaq in the US.

The deal means the two companies will share their technology, and Verity will pay NCT an up-front royalty fee of $3m (pounds 2m).

Verity has already signed up with NEC, the giant Japanese consumer electronics and personal computing firm, for its technology to be used in its lap- top computers. It all sounds pretty encouraging on paper, and the company is almost certainly doing the right thing when it licenses the technology, rather than try to go it alone.

However, the shares have attracted all sorts of hyperbole, and some of the recent buying has left a suspicious whiff of a stockmarket ramp in action.

The annual worldwide market for loudspeakers is worth a little over pounds 1.7bn. Verity could say justifiably that its technology will be used in items such as laptop computers and mobile phones, which fall outside the conventional speaker market.

Most commercial royalties pay a 3 per cent fee on sales of another company's technology. If that were the case, a back-of-the-envelope calculation suggests that worldwide sales for the new technology will need to top pounds 400m if Verity is to generate pounds 12m in royalty income, and thereby merit its stockmarket tag of pounds 147m - a tall order.

The original speakers and percussion business is worth about pounds 15m to pounds 20m, leaving pounds 120m plus in hopes.

With royalty income of pounds 12m, after central administration costs and tax, say there is pounds 6m left over, putting the shares on a ratio of 20 times 1998 earnings - which is just about right.

Can Verity do it? It seems unlikely - fee income of, at best, pounds 8m by 1998 looks more reasonable. The shares look over-priced, and it is time the market took a more sensible view on this company's financial prospects.

Later this month will see maiden results from LucasVarity, following the merger of the two concerns, under chief executive Victor Rice. Observers are convinced it will announce details of a long mooted share buyback, which will probably be accompanied by a cut of the 7p dividend. There is an argument that some of the surplus cash from this move and cost-cutting will be best returned to shareholders through a share buyback, and LucasVarity has said its leading shareholders approve the move. Share buybacks are a US favourite - which, given LucasVarity's quasi-US status, lends the story credibility.

Tomorrow the market will hear how Manchester United has performed off the field, when it reports its interim results for the six months to the end of January. The range of forecasts is for pre-tax profits of pounds 15.3m to pounds 16m before transfer fees, against pounds 11m last time. Transfer fees are expected to notch up pounds 3.8m, down from the first half figure last year of pounds 4.2m. One boost will come from higher gate receipts; the six months is the first full period since capacity at Old Trafford was increased to 54,000.

The results have been brought forward a day because the club plays the first leg of its European Champions League semi-final against Borussia Dortmund on Tuesday.

The bio-tech merry-go-round continues unabated, with Drew Scientific the latest boy wonder to grab the market's attention. The company had to announce it was working on a new marker for heart disease, after the shares went into orbit over the last few days. They soared another 32.5p on Friday, to 195p.

Given the recent ups and downs in the sector, it is clear that the best approach for wannabe biotech investors is to select a judicious portfolio of shares, and spread some of the risk around.

Pity shareholders in Alpha Omikron, the company with assets ranging from a Hungarian syringe factory to a Russian publishing concern. It was booted off the AIM on Thursday, after its nominated adviser, Henderson Crosthwaite, resigned. The company has had problems proving its assets exceed liabilities, and the future looks bleak. It is a warning, if one were needed, that while the AIM, set up to serve fledgling companies, can offer rich rewards to well-informed investors, equally purchasers must be prepared for the worst.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected