Taken From Share Mag
STANELCO (SEO)
I have never been waterskiing but I reckon buying `shares in Stanelco will provide a similar experience. There may be a few bumps along the way but the experience should be exhilarating.
This company has been around for years. It uses radio waves (RF) to make optical fibres but it has lately focused on RF for molecular bonding of plastics without using heat. Controversially this has led it into a legal battle with BioProgress (BPRG), which accuses the company of abusing confidentiality to launch a rival system for making soluble capsules.The rights and wrongs of this matter went before the courts last month and a
decision is imminent. This used to look important but now it seems irrelevant. The reason for this change is a patent announcement made by Stanelco on 16 July. It filed an application for a new system for sealing the plastic packaging on cooked and raw meat without having to use special laminates or coatings. The statement estimated it would cost 40,000 to retrofit packaging machines and then the company would charge a royalty of 35,000 per year.
Savings on plastic are reckoned to be worth 100,000 per year.
There would also be a saving in the UK of 10,000 tonnes of plastic which currently goes into landfill.
There are at least 20,000 machines across Europe and several thousand more in the US.
This suggests that royalties would be a mindboggling 875 million per year if all of them were retrofitted. That equates to 110p for every Stanelco share per
year. For comparison, think of the fortune made by Tetrapak. Just a meaty pipedream?
Hardly. On Tuesday the company announced a deal with Robert Reiser, a US equipment maker. Reiser aims to convert at least 120 machines in the first 12
months of the agreement. This alone will be worth over 400,000 in royalties.
The key point is that Reiser was not even involved in the prepatent trials. It has concluded the deal in the month since the patent announcement. Given the
glacial speed of most US corporation lawyers, this is a fantastic endorsement.
Before the announcement, sponsored research house Hardman forecasts sales of 4
million for the year to October and 12 million to October 2005. Impressive as these are, they have probably been far overtaken by events.
The shares have taken a tumble recently, dropping from a 2005 peak of 11p. Theimpending BioProgress verdict may be factor, along with the malaise affecting anything tech-related. Even if Stanelco loses, any weakness should present a further buying opportunity.
.
BUSINESS: Use of radio
frequency in manufacturing
processes
VITAL STATS:
Market value: 80.1 million
Historic PE for Oct 03: -100
Prospective PE for Oct 04: 55
Prospective PE for Oct 05: 9
Dividend yield: 0.8%
Spread: 10%
NMS: 25,000
1Sealing patent heralds fantastic boom time for Stanelco
2Contract with Robert Reiser should be just first of many
3Verdict on BioProgress case imminent but no longer important
STANELCO
HIGH 11 4/02/05
LOW 3.39 15/8/03
LAST 10.75 4/02/05
Source: Thomson Financial/Datastream
Shares Summary
by: Tim Freeborn
STANELCO (SEO) 11p BUY