Oxford Catalysts: Big drop! Why and what am I doing about it?
Oxford Catalysts (LON:OCG) (147p and 1% of the JIC portfolio) The shares are taking a bit of a hammering today, down 13% to 147p. The Company has not made an official announcement so I have done some fishing around. Last September Oxford Catalysts (OCG) announced a contract to supply a 1000 barrels per day(BPD) gas to liquids plant (GTL) to Calumet's Karns City site in Pennsylvania. In that statement it said that plant design would be completed by end of 2012 and that a final decision to proceed was expected in H1 2013. It seems that in its Q4 results conference call Calumet whilst remaining committed to the project are getting cold feet about being the "first to market" and are therefore taking their time. They are doing some more up front engineering analysis to make sure that it is the right project for them to do. They went on to say:
"We feel very strongly about the economics of the project and we feel strongly that the technology works on paper, we just want to make sure that we engineer it almost thoroughly before we give a final go or no decision , so that's the project we'll be speaking over the course of the year".
Clearly this is a little disappointing but in a concept stock such as this, is to be expected. It will be a bumpy ride as the market over reacts to both good and bad news. Good news could easily come at any moment. OCG is expecting an order from Ventech before the end March; in its announcement of 19th November revealing the agreement with Ventech OCG said:
"Ventech is required to place an order with the Group for FT reactors for the first commercial facility by 29 March 2013, estimated at $8 million".
The Calumet delay may make it more difficult for Ventech to deliver, or it may not!
Conclusion: The volatility in the stock is precisely the reason I only bought a 1% holding at 149.5p last December. I suspect the fall has already been overdone but I will not be adding yet. I am happy with a 1% holding at this stage in the Company's development. Should it fall further I would hope it would get some support around the 125p area at which it raised £30m in December.
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Oxford Catalysts Group PLC is a holding company. The Company is engaged in the designs and development of technology for the production of clean synthetic fuels from both conventional fossil fuels and renewable sources such as bio-waste. The Company is primarily focused on the production of synthetic fuels via Fischer-Tropsch (FT) synthesis, a market that has the potential of producing as much as 25 million barrels of fuel a day. Its subsidiaries include Oxford Catalysts Ltd, which is engaged in Design and development of catalysts, and exploitation of platform catalyst technologies, and Velocys, Inc., which is engaged in design, development and exploitation of its microchannel technologies. Its micro-channel process technology with high-activity catalysts are together marketed under the brand name of Velocys. more »
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Oxford Catalysts(147.5p and 0.9% of JIC portfolio); There were no real surprises in the results for the year to December 2012. Much of the statement involved re-capping on the successes of the last few years; concluding successful field trials of the technology and gaining its first commercial orders. It has also put in place a manufacturing supply chain and signed a partnership agreement with Ventech Engineers for modular design and fabrication. Following the cash raising of £30.6m in January this year combined with the year-end cash of £9.5m the Company should have sufficient cash for the forseeable future. When it signed its deal with Ventech it was expected to place an order in the first quarter. Hopefully that will come in the near future!
Conclusion: Pierre Jungels, Chairman says "2013 looks set to be another pivotal year of commercial progress for the Group." Clearly 2012 saw the group make major progress in proving its technology and gaining initial orders. For the share price to make further progress the Company needs to build on that success, especially in the North American market with its abundance of cheap shale gas. I only have a 1% holding reflecting the considerable implementation risks that remain. Should the future become clearer, although probably at higher prices I would look to add to the holding. On the other hand, I am limiting my losses with a small position should it disappoint.