Itaconix PLC (LON: ITX) is one of those deep tech businesses that are harbingers of the bright new future. Based upon research from Bristol University the specialty is in the use of – and development of – itaconic acid based polymers. These can then be additives to a number of high-volume commercial products which is what the underlying interest is.
Current volumes are small, the interims show that Itaconix is still loss-making and that revenues at under $2 million a half year (Itaconix reports in US dollars) means – well, it means it’s a tiddler. Which is fine, every business does start off small, the question is what happens next.
The base idea, exploring this new area of chemistry for industrial applications, is interesting, It may or may not lead to the creation of a large and profitable firm. That’s something the future will tell us and the share price at Itaconix will be partly determined by that success and its likelihood.
In the short term here though there is that concern over simply how small the operation is. So small in fact that some mere rain damage stopped production for a while. The report on Itaconix suspending production is here. Today’s report on Itaconix restarting is here.
The report on restarting production leads to today’s price jump and largely makes up for the fall in the Itaconix share price since the temporary cessation of production. At which point well and so what really? Except the events do show one of the worries about the company.
The detailed report shows that production was suspended because the landlord decided to repair the roof. Then came a storm and some rain damage. OK, it’s likely that the corporate or possibly landlord insurance will cover damages and so on. So direct losses aren’t quite the point.
What the events do show is how fragile a small operation can be. Itaconix is on one site and one site only in production matters. Damage to that one site entirely ceases production – although customers continued to be served by shipments from stock. That’s not a robust operation that is. For it’s a standard part of security of both supply and production that there should be – if we want that security – diversity across geography. This being exactly the thing that a small operation doesn’t, even cannot, have.
This is then the risk that is over and above the more normal ones about the business case. Just the one event can knock Itaconix out. It’s possible that recent events will lead management to consider geographic versatility before volume of business really justifies it. If so this might be seen as a positive development, even at some cost.
For whole Itaconix remains a one site producer it’s likely that there will still be a substantial risk premium assigned to the shares.
Itaconix shares are traded on the London stock exchange's AIM market (the alternative investment market), which is the submarket specifically for smaller companies. AIM stocks are attractive to investors as they have tax advantages and smaller companies have the potential to benefit from rapid growth. But are Itaconix shares the best buy? Our stock market analysts regularly review the market and share their picks for high growth companies
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Tim Worstall is a freelance writer specialising in economics and the financial markets.