US Edition Plant Health Care
158p -6.75p
Questor says HOLD
Until the commodity bubble burst last year, rising food prices were becoming a significant problem. It led to rioting in Indonesia, Senegal, Egypt and the Philippines as the cost of staples such as wheat and corn rose steeply.
A lot of this "food bubble" was caused by investors hedging against a weak dollar as well as the rush to grow biofuels on agricultural land.
It is against this backdrop that Questor recommended buying shares in agro-technology group Plant Health Care on April 20 last year, when they were at 341p. The shares have fallen significantly since then. So what should investors sitting on losses do now?
Well, it's not all doom and gloom. The company has signed a further significant deal with the US agricultural group Monsanto and was upbeat about its prospects in its recent results statement.
The company has spent the past few years developing and testing natural treatments designed to improve crop yields. Its two main products are called myconate and harpin. Myconate has proved a disappointment. It is a product designed to increase the rate of plant root colonisation. This allows the plant to grow more quickly and with more strength to resist disease.
There was bad news regarding this product at the end of last year when Germany's Bayer ended its exclusivity agreement for developing a myconate seed-coating that would work alongside a Bayer fungicide. However, the company is in discussions with other groups about a new deal.
There has been better news on its other product, harpin. This is a protein that, while harmless to crops, causes the plant to believe it is under attack and to trigger its natural defences. The technology suppresses pests such as nematodes and yield-inhibiting diseases, and extends the shelf-life of salad crops – a key benefit for supermarkets.
In December 2008 the company signed a commercialisation agreement for the use of harpin-based technology as a seed treatment with Monsanto, which spent a year evaluating the technology. It will now proceed to continue commercial development of the harpin seed treatment as part of its global seed treatment platform. Plant Health Care licensed the exclusive rights to Monsanto for corn, soyabeans, cotton, rapeseed and selected vegetables. In return, Plant Health Care will receive the milestone payments plus ongoing royalties based on the total volume of harpin seed treatment.
In the 12-months to December, revenues rose 9pc to $19.9m, with pre-tax losses narrowing to $4.22m from $5.41m.
Because the group is loss-making, its cash position is very important. Cash at the end of 2008 had fallen to $7.3m (£5m) from $10.8m at the end of 2007 - and had further declined to $4.5m by the end of February.
The group is likely to continue to burn cash for some time and sales are unlikely to ramp up enough for the group to be profitable in the near term. This is obviously a concern when the best investment strategy is a cautious one.
However, the long-term prospects for harpin look good. Based on Monsanto's acreage targets for its second-generation seed products and its estimated minimum royalty rate of 25 cents per acre, Evolution Securities have calculated that the Monsanto deal alone could "conceivably" be worth 350p per share.
Positive catalysts for the share price going forward could be a new myconate deal and further commercialisation of harpin. Weighing all these facts, Questor's stance on the shares is hold.
A share club of which Garry White is a member has a holding of 383 shares in Plant Health Care.
London Stock Exchange
548p +28p
Questor says HOLD
This year will be a very tough year for all European bourses – and this fact was highlighted in Thursday's trading update from the London Stock Exchange.
It said that the average daily number of SETS trades had increased 17pc to 735,000 in the 11 months to the end of February but the average daily value traded fell 21pc to £7.1bn, in line with the average fall in the FTSE 100.
Trading at Borsa Italiana was down 12pc to 253,000 trades per day, although its bond trading platform has good future potential.
At a challenging time for its business, it is also facing increased competition in the form of BATS Trading's and Turquoise, although this is not significant yet. On Thursday, BATS Trading's platform accounted for around 4pc of all trades in the FTSE 100.
There was a bright spot at the LSE's Issuer Services division, which was boosted by the scramble for companies to shore up their balance sheet via rights issues. Money raised across its markets surged 86pc to a record £84bn.
Demand for professional terminals receiving LSE real time data has fallen by 3,500 to 107,000 a decrease of 3,500 versus last year. This is not surprising as the City has borne the brunt of job losses in this recession.
However, Questor feels that a lot of bad news is accounted for in the price. Markets will eventually recover.
The shares are trading on a prospective earnings multiple of 7.4, compared with German rival Deutsche Boerseon, on a multiple of 10, and NYSE Euronext, on 10.1 times. This valuation discrepancy is the reason for Questor's hold stance.