Phase Holographic (PHI) was by far the best performing share of my portfolio in 2015. During 2015, the share moved from 8.5 SEK to 41.40 SEK (+387 %). Then in January 2016, the company announced an issue. The share price immediately fell to a level around 25 SEK, from where is has moved a bit up one week and a bit down the next during entire 2016 and the beginning of 2017. This picture seems have changed lately and the share moves up and seems to have regained the momentum from 2015. The question is why.
As you can see on the share price development above this year the share were rolling downhill until the end of February. Then something changed – most notably seen on the very high trading volume on March 7th. This day PHI released the news that its closest competitor, the US based Essen BioScience was sold to a German company, Sartorius for 320 million dollars. The market cap of Phase Holographic was less than ten percent of that (262 MSEK) on the day the announcement came. The sale is a clear indication of the potential in Phase Holographic.
PHI in brief
When that said, Phase Holographic and Essen BioScience are on very different developmental stages and Essen is much larger with 150 employees, has a turnover of $60 million, and making profits. On the other hand, the technology is not as advanced as the technology of Phase Holographic.
The CEO of Phase Holographic has made it clear on several occasions that at some point a larger company with will acquire the company. Consequently, the primary focus is on scientific value and solid documentation. The main value for a future owner is the technology and how it can some into use.
If we take a closer look at the turnover is has remained stable between 0.8-1.2 MSEK the past 5 quarters. After the Q3 report in January, the cash level was 23 MSEK, and the burn rate around 1 MSEK per month. In other words at the present level, the company can continue almost two years. The company have intensified sales by strengthening the sales organisation during 2017.
This might lead to higher turnover in the future – but also a higher burn rate in the next one or two quarters. The company cannot solely invest in product development, but must generate an increased turnover. Otherwise, lack of cash can end up determining the price of a future sale.
Share price in April and May
If we take April 7th as the start point of the rise, the share have moved from 24.1 SE to 35.6 SEK – a rise of 48 % in a month. During the same period, there have been no ‘formal’ news and no reports. Therefore, to answer my own question, I think the Essen sale set the scene for the rise, but it is nourished and kept alive by an intensive communication from the CEO, Peter Egelberg. During the last month, he has published four ‘CEO commentaries’ availably on the company web-site and made public via Aktietorget (in Swedish and English). His last commentary was in July 2016.
There is no doubt that a very communicative company tends to generate more focus on the share and the company, and often this alone can lead to higher share prices. The psychology behind is simple, I think. As investors, we have no insight in the companies in which we invest unless there is press release or a report. Commentaries or presentations gives us a glimpse of what is going on and to some extent assures us that things are moving in the right direction.
There is of course an ethic side to this. On one hand, the company can give investors in high-risk companies a certainty that their investment are safe. I find that legitimate. On the other hand, there is the question of price manipulation. It is a fine line, and there are no excuse for being on the wrong side.