Graphene could be a spectacular story – but is this the best way to play it?

A newly listed company aims to make big profits from graphene, the 21st-century ‘wonder material’. Ed Bowsher asks whether you should buy in.


Graphene: very thin and extremely strong

Would you like to invest in the new wonder-material for the 2020s?

A material that is extremely thin but also very strong. A material that could be used in super-lightweight planes, foldable touch-screen computers, or batteries that will last far longer than anything we have now.

Well, thanks to a newly-listed company in London, Applied Graphene Materials (AIM: AGM), you could make that investment.

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But before you pile in, there are a couple of questions we need to ask. Is graphene really the wonder material it's cracked up to be? And even if it is, is Applied Graphene Materials the best company to back?

What is graphene anyway?

Matthew Partridge talked about it in a recent cover story

But I suspect that many people only came across graphene for the first time last week. That's because there were two big graphene-related news stories.

Firstly, Applied Graphene Materials listed on Britain's Alternative Investment Market (Aim). Secondly and perhaps more eye-catchingly Bill Gates gave a $100,000 grant to scientists at Manchester University to develop ultra-thin condoms that will enhance sensation'.

These two stories raised the profile of a substance that certainly has plenty of potential. Indeed, as The Independent wrote last week: "if just a fraction of graphene's potential is fulfilled it will change the world."

Without getting too technical, graphene's potential comes about because it is both very thin and extremely strong. According to the New York Times, a layer of graphene stretched over a coffee cup, could support the weight of a truck bearing down on a pencil point. You have to take these analogies with a pinch of salt (what's the pencil made of?) but you get the picture.

It's also better at conducting electricity than silicon. Procter & Gamble is reportedly considering using graphene in some of its manufacturing. And Dyson is interested in using it for its vacuum cleaners - apparently graphene's ability to conduct electricity could reduce static and hence help a vacuum suck in more dust.

Graphene also has potential uses in medicine, electronics, food packaging you name it. Governments around the world are racing to fund research. The British government has spent £60m while the EU has invested €1bn.

Sounds great doesn't it? The big sticking point is that up until now it's been hard to manufacture large quantities of graphene. That's mainly because many manufacturers use graphite as their source material, and production costs for the stuff can be high.

How Applied Graphene Materials plans to solve graphene's big problem

Instead, an organic feedstock' is fed into a high-temperature reaction chamber. The heat decomposes the feedstock, and graphene is collected at the output of the chamber. This process is relatively cheap and won't create nasty pollution. All by-products from the process are water soluble and non-toxic.

Currently, Applied Graphene Materials only has the capacity to produce a tonne of graphene a year, whereas at least one rival company can produce 80 tonnes a year.

So Applied Graphene Materials' move to list on the stock market makes sense. The listing raised £11m for the company. This will fund an expansion in capacity to eight tonnes a year.

The listing price was 155p a share which valued the company at £23m. But in a frenetic first week of trading, the share price soared to 471p on Friday evening, which means the company is now valued at £80m.

So is that a fair valuation? Bulls will point to graphene's potential and to estimates that the global graphene market could be worth as much as $1.3bn by 2023.

But on the downside, Applied Graphene Materials only generated £11,000 (yes, eleven thousand pounds) in revenue last year. So to justify its current market capitalization, it's going to have to get a lot bigger, a lot faster.

Maybe that will happen. But the fact is that it's extremely difficult to value a company at this stage of its development.

I'm satisfied that graphene itself probably will become a widely-used material, so I can understand why investors were so keen to buy shares last week. They want exposure to what sounds like a very exciting story.

But my problem is that I can't say with sufficient confidence that Applied Graphene Materials will be a major player in this industry. Its manufacturing process does appear to have potential. But it's just too early to give anything like a definitive verdict.

So I'd rather wait until we have a better idea whether Applied Graphene Materials really will be a winner in this sector. The shares may well be more expensive by then, but they will also be a lot less risky.

And that will suit me fine. I really don't want to have investments that will keep me awake at night.

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Ed has been a private investor since the mid-90s and has worked as a financial journalist since 2000. He's been employed by several investment websites including Citywire, breakingviews and The Motley Fool, where he was UK editor.


Ed mainly invests in technology shares, pharmaceuticals and smaller companies. He's also a big fan of investment trusts.


Away from work, Ed is a keen theatre goer and loves all things Canadian.


Follow Ed on Twitter or Google+.