A speculative stock that could just prove a winner
Published: 14:01 Thursday 26 January 2006
By Joanne Wallen, Online Editor
The former Flinstone Technologies’ business model of incubating technologies from the Soviet block Cold War days proved less than successful but in its new guise as Proventec, the company could just be on to a real winner.
Proventec has two key technologies that have already started selling well but which could have serious global potential.
The first is a steam cleaning machine aimed at environments such as hospitals and food preparation businesses. The machine produces dry steam, which nevertheless is pumped out at 130 degrees centigrade, both cleans and sterilises and which can be used to clean floors, surfaces and for industrial cleaning of conveyor belts and the like. The company has also developed a special mop to be used in conjunction with the steam cleaner. The machines sell for anything from £350 for a small unit, to £20,000 for a large industrial unit used for conveyor belts.
In what could prove to be an important breakthrough, the machines have recently been trialled by the new University College Hospital in London’s West End, to clean all of the equipment being transferred from the old hospitals into the new site. This is part of a trial that will lead to a full report being submitted to the NHS review panel, and which chief executive David Chestnut hopes will give the technology a ‘badge of approval’ that could prove very valuable to Proventec.
The second business provides a flame retardant aerosol spray, which can be used to treat wood, canvas and other surfaces after construction to make them flame retardant. The company has recently won a deal to coat one million wooden telegraph poles in Australia, which is currently in the grip of some devastating forest fires. Government legislation has said that any poles not treated will have to be converted to concrete. Chestnut said it has taken ten years to get this product to the point where it has gained the approval of all the necessary standards bodies.
The product can also be used to treat thatched roofs, tents, and this year, the biggest single sale was to an importer of Christmas trees. The spray is also sold to consumers, usually branded by retailers as their own-label product.
Flintstone came to the market in 2002 to develop business around technologies that came out of the Soviet Cold War era. Management soon realised that developing businesses in which it had only minority stakes and exiting them at a profit for shareholders would take years, and it decided to change tack through a reverse takeover of two Dutch businesses, which brought in the steam cleaning and coatings businesses.
The company still holds its investments in some six other technologies, and is about to roll two of these into the two operating divisions.
Firestop chemicals has developed a flame retardant product that is good for treating furniture fabrics. On wool, it lasts through 25 washes, and on cotton, the biggest market, it lasts for at least 12, which is an acceptable standard for the furniture industry, Chestnut said. Proventec owns a 42% stake in this business and hopes eventually to gain total control of it.
Biocote sells an anti-bacterial compound that can be used to coat surfaces and prevent the growth of bacteria. Chestnut reckons it could be used in a hospital for example, in conjunction with the steam cleaning. If the table were coated first, it would prevent major problems if cleaning were accidentally missed. When used in conjunction with steam cleaning, it should enable the hospital to virtually eliminate surface germs.
‘In 12 months to two years time we will be considerably more profitable and a much larger business’, Chestnut reckons. He said there should be a further announcement on expansion in the next couple of months.
The company has a presence in the Czech Republic, serving eastern Europe, the US and Canada. It also has a network of agents in Australia, Spain and France and is looking to build one in Scandinavia.
Shares are currently 9.75p, valuing the company at £22.5 million.
Citywire Verdict:
Trading at just under 28 times 2007 earnings forecasts, there is already considerable growth priced into the shares.
However, the company is still at a fairly early stage in exploiting the sales potential of these technologies, and a couple of major contracts could transform its fortunes.
At this price this is highly speculative, but an interesting stock to watch.