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This tiny company’s ‘wonder materials’ could change our world
Tom Bulford looks at a small-cap tech company that's in prime position to profit from alternative energy sources.
In today's climate, we're increasingly aware of the dangers of fossil fuels running out. "Be more green recycle play your part," we're told.
But so far, the green energy revolution has been a bit of a damp squib. The emergence of the electric car and the development of hydrogen vehicles have certainly got the ball rolling. But there are still major flaws in both technologies, and we are yet to see a real take-off.
In today's Penny Sleuth I want to tell you about a fascinating little company that's doing its bit to make this planet-saving technology work. And it's doing it by inventing new wonder' materials that could solve a broad range of technical problems
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The biggest impediment to the adoption of electric cars is the battery. Take Nissan's new LEAF all-electric car. Last year Nissan sold over 600,000 of these worldwide, but unless you are a committed environmentalist, I don't see the attraction. Even with the benefit of a government grant, a LEAF will still cost you over £25,000 and you can only drive 100 miles before you have to recharge the battery/
How this tiny UK company could make electric cars viable
Few of us could be bothered with that. Until electric cars can go further between each battery recharge they are never going to be widely popular. Last week I took a trip down to the south coast to visit a small company called Ilika (Aim: IKA) that believes it may well have the answer. Let me tell you a little about what Ilika does.
A spin-out from Southampton University, Ilika is a world leader in the development of new materials. New materials change our daily lives for the better. New lightweight but super strong plastics make cars and aeroplanes lighter; new metal composites enable consumer electronics; and America's WL Gore has built a multi-million dollar global business on the back of its water resistant but breathable fabric, Gore-Tex.
At the moment, all this can take up to ten years. But Ilika believes that it can radically shorten this development cycle. Through the process of physical vapour deposition, Ilika is able to create a spectrum of different materials on one plate. It can then rapidly test this spectrum to find the point on the plate where the mix of ingredients give the desired properties of, for example, resistivity or conductivity.
This new energy source could take off in five years' time
One of its development partners is Toyota, which is desperate to find a method of improving battery performance. In a lithium-ion battery, the lithium ion travels from anode to cathode passing through a liquid polymer gel electrolyte.
This liquid makes the batteries bulky, it degrades over time and furthermore it's unstable. In 2006, Dell had to make an embarrassing recall of 4.1 million batteries due to this technical fault. It was said to be the largest safety recall in the history of consumer electronics.
One way to avoid a repeat of such a disaster is to improve the energy density of batteries by replacing the liquid with a solid state electrolyte. The outcome should be a much safer battery. This could double the energy density of batteries. Toyota, with Ilika's help in the creation of the solid state electrolyte, is hoping to achieve this target within five years.
Ilika is working with companies best placed to commercialise any new materials, taking payments for development work with royalties based on subsequent sales. Much of its work relates to new forms of energy. Take hydrogen, for example. This is a more powerful energy source than a battery, but it is both difficult to store and to convert into electricity.
Three new materials to power the world
This year's Olympic Games will showcase London cabs powered by hydrogen fuel cells. But these rely upon hydrogen compressed under very high pressure an alarming prospect according to Ilika's chief executive Graeme Purdy (that's him with me in the picture up above).
Working in collaboration with Shell, Ilika has come up with a possible alternative. This is a solid metal hydride (a compound in which hydrogen is mixed with other elements) which can be stored in powder form at moderate pressure to then release hydrogen when warmed up. This is now in commercial trials in Michigan with Sigma Aldrich.
Ilika also has a solution to another of the problems of hydrogen fuel cells the high cost of the platinum-based electrodes. Since the total amount of platinum ever mined fits into a London bus, the industry needs an alternative. Ilika's answer is an electrode made from a palladium alloy, that could be as effective as platinum at one third of the cost.
In a final example of the importance of new materials, Ilika is addressing the fabrication of sensors. Used, for example, to activate air bags, these are made from peizoelectric materials that create electricity when subjected to stress. But because these contain lead, the EU wants to ban them. So Ilika is devising lead-free replacements, now in trials with the German maker of technical ceramics, Ceramtec.
New materials are essential to the products of tomorrow and Ilika is a great example of a knowledge-based, world leading business based here in the UK. Its only serious rival, Silicon Valley's Intermolecular (Nasdaq: IMI) is valued at £230m on Nasdaq.
Comparing that valuation with Ilika valued at just £18m, this gives some clue to its future potential, if it can convert its know-how into profit. That's the big challenge. For now, it's one to watch for the future.
This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.
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Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International, he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund.
