As I feared, Labcon have terminated their agreement with Bluechiip, and are now in legal dispute over outstanding amounts owed. Not good news for holders.
Without the agreement, there is very little on offer in terms of future revenue, despite commentary about new agreements with some other clients towards the end of the announcement.
A pivot back to direct to customer sales – which was a tactic abondonned by the MD in 2015 in favour of OEM agreements – looks to be back in play, a sure sign that they are struggling to get anyone fully invested in the technology.
This is yet another reminder for investors, myself included, to rely less on promises and a little more on reality. When a thesis is broken, sell quickly.
BCT shares are in a trading halt this arvo pending a further announcement regarding their Labcon agreement. My sense from the language of the halt request is that it's not good news, unfortunately.
Labcon has possibly notified them of delays to the original agreement timeline, or worse, a scrapping of the agreement due to low demand. If it was good news, I doubt the TH would have been called for.
Coupled with a lack of other OEM agreements over the last year or so, and I think I can safely say my original thesis has well and truly broken, and I'm glad I sold on the fears that look now to be playing out.
Whatever the outcome of today's announcement, I still think the technology is fascinating and could be very lucrative if they can sort out their commericialison strategy and target market. But sadly, that is looking further and further down the road, not helped one bit by COIVD.
best to wait for signs of real success before buying back in.
Fairly discouraging top and bottom numbers from Bluechiip this half, with revenue down 37% to $141k, and losses up 80% to $2.25m. The decline was due to delays in the shipments of chips from Europe, likely caused by a ramp up in manufacturing and technical improvement spend to the chip designs as they prepare to fulfil their Labcon agreement.
The consolation prize was that cash receipts were up 317% to a record $713k, keeping in mind this was due to delayed payments from Q4 2019. That and the recent cap raise (and a cheeky term deposit of $2m set aside) means the cash balance looks capable of riding out another year.
Commentary from management was that they’re back on track and shipping “tens of thousands of chips” which at a sale price of $1, still doesn’t bring us to the level we need to be to hit the agreement numbers with Labcon this year, but it does suggest there’ll be no further production and shipping woes to get us there, though the timing will likely be pushed out.
Looking at the payments to suppliers and employers in the cash flow statement however, and the figure nearly doubled, jumping to $4m – so I’m feeling a little more confident that the orders are flowing through, despite the low revenue number here.
Even so, I’m expecting the market to react with impunity tomorrow. This business is incredibly lumpy at the moment as it tries to fulfil its agreement with Labcon, but the full year revenue number should see growth, even though it will likely come with a higher loss. Looking to the end of next FY to see the thesis play out properly (and I don't think there's enough evidence to suggest it's broken), but I suspect jumped on this one too soon. Should be doing much better in a year or two's time.
Unfortunately, I think the Coronavirus breaks the thesis here.
With manufacturing of the chips handled in Europe, and the significant disruptions to the population there, I can't see Bluechiip fulfilling their Labcon agreement any time soon, and the likelihood of further OEM agreements is even lower now that labs will be fighting for funding. Additional expesnes will be likely low on the priority list.
It's a shame, because I think the technology could revolutionise more than just the Cold storage industry, but it's clear to me now that the company will most likely need to raise more capital within a year and the revenue is unlikely to be there to steer them through the next couple of years.
Would dip my toes back in on a severely depressed valuation, but not right now. Will wait to see that Labcon agreement play out more solidly.