Gamble of the week: environmentally friendly pest control

published 14 June 2007

With temperatures expected to reach the high 30s this summer, 2007 should be a great year for ice-cream and air-conditioning sales. A less obvious and less pleasant beneficiary is the insect population. The combination of a mild, wet winter and the hottest April on record means we're set for an explosion in the number of midges, flies, cockroaches and every other creepy-crawly as summer draws in. In response, DIY stores are stocking up on ant powders and fly sprays. The trouble is that many of these contain hazardous chemicals.

Gamble of the week: Venteco (Aim:VTO)

Venteco, which listed on Aim at 3p in March 2006, targets the non-toxic segment of the £5bn global pest-control market; basically, it finds environmentally friendly ways of killing bugs. Its top selling brands are glue traps based on natural ingredients.

The company has also expanded into electrical traps designed to catch insects using UV light. This could be just the tip of the termite mound; Venteco also owns the rights to manufacture Cryonite, a patented technology developed by Swedish scientists that freezes insects to death. It directs carbon dioxide at 80C through a special nozzle. This creates a super-cooled snow that kills pests instantly, leaving no residue chemicals. So unlike with fumigation, hygiene-sensitive sites such as food factories do not need to be shut-down during sanitation. That makes Cryonite cost-effective as well as environmentally friendly. In April, 150 units at around £1,000 each were ordered by Linde of Germany, a clear endorsement of the benefits of the product. This compares to Venteco's total sales of 152 units in 2006.

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And it's not just food producers who can benefit, so can many others, from hospitals to hotels. In January, for example, a high-profile case saw one of London's most expensive hotels the Mandarin Oriental suffer an embarrassing multimillion-dollar lawsuit after a US couple were allegedly bitten by bed bugs during a stay. Cryonite not only kills bed bugs quickly, but also means the fumigated room can be re-let immediately, avoiding lost revenues. Cryonite has now been formally launched in the UK, US, Italy and the Nordic countries.

Venteco's annualised turnover is estimated to be around £4.5m. House broker Libertas expects the company to turn a profit in the next 12 months and it has about £1m of net cash on the balance sheet. Cryonite is still in the early stages of commercialisation, but overall, Venteco looks an attractive play (albeit high risk, due to its small size and the competitive nature of the industry) on the growing demand for environmentally friendly ways to tackle the rising insect population.

Recommendation: SPECULATIVE BUY at 1.63p (market cap £6.0m)

Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments

Paul gained a degree in electrical engineering and went on to qualify as a chartered management accountant. He has extensive corporate finance and investment experience and is a member of the Securities Institute.

Over the past 16 years Paul has held top-level financial management and M&A roles for blue-chip companies such as O2, GKN and Unilever. He is now director of his own capital investment and consultancy firm, PMH Capital Limited.

Paul is an expert at analysing companies in new, fast-growing markets, and is an extremely shrewd stock-picker.