THE INVESTMENT COLUMN: BTG takes a long-term view

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The Independent Online
Who says the City never takes a long-term view? BTG, the technology licensing company, has patchy sales growth, pays a derisory dividend and has little notion when it could hit real profits. Yet the group, set up to encourage the commercialisation of British inventions, has been one of the UK's most spectacular privatisations. Sold to management in 1992 for less than pounds 15m and floated at 225p in 1995, the shares soared to almost pounds 27 at one point, prompting a five-for-one stock split last December.

The excitement is about the potential of a company brimming with more than 9,000 patented inventions. BTG pans through ideas generated by the drugs, telecoms and engineering giants, buying some 100 of the 500 inventions it looks at a year. The group secures the patents and licenses the products to partners - for a healthy half share of any sales.

Making money from all this can take years, but with partners taking on development expenses, costs and risks are small. However, the upside is not. If only a handful of BTG's products make it, the company could be sitting on a gold mine.

One big hope is Torotrak - a fuel-efficient vehicle transmission system which does away with conventional gearboxes. Toyota and Ford have already licensed the system and, given its potential, BTG will spend around half of yesterday's pounds 25m placing to develop the product, on expectation of a greater royalty.

Of course, there are negatives. Costs of throwing out failed products are considerable and BTG needs to sharpen its focus on fewer ideas to optimise revenue growth. The group will also be loss-making for at least the next two years and analysts are undecided on valuations, which depend on complex assumptions. But BTG does not bear the risks of a normal technology or drugs company - cash costs are lower, there is less exposure to failure and with a huge number of potential products, BTG can plug revenue gaps when patents expire - notably on the company's Pyrethrin drug next year. Given the heady upside, the market is probably right to think that the shares, ahead 35p to 657.5p, will keep rising.

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