June 2010’s Penny Shares to Watch…

(Compiled from articles published in May 2010)

This month’s penny shares to watch:

• The penny share invention that could have prevented the Deepwater disaster…

Plexus Holdings (POS)

• This penny share could slash the UK’s energy usage…

Advanced Power Components (APC), Cinpart (CNP), Sabien Technology (SBT)

The penny share invention that could have prevented the Deepwater disaster…

(This article first appeared in Penny Sleuth on 18 May 2010. Penny Sleuth is an unregulated free e-letter written by Tom Bulford and published by MoneyWeek Limited)

Ben van Bilderbeek is a frustrated man – and with good reason.

He is convinced that his invention, the ‘Pos-Grip’, could have prevented BP’s catastrophic oil spill in the Gulf of Mexico.

He is also adamant that it should be much more widely deployed in the oil industry. But because of the intransigence of the US oil establishment, the Pos-Grip is not approved for routine deployment on oil wells and remains largely unused.

I met van Bilderbeek and his colleague, Augusto da Mota last week in Aberdeen, at the opening of a new testing for their company, AIM-listed Plexus Holdings (ticker: POS).

As van Bilderbeek, Plexus founder, explained, this is a story that has implications for other innovative small businesses. He summed it up thus: “Only very occasionally does a superior technology emerge that surpasses the established norm and sets previously unattainable standards. When this happens we believe that such an opportunity should be embraced and welcomed, rather than deemed disruptive.”

The little innovation that could transform the oil industry

The story goes back to 1997 when van Bilderbeek, who had already created one highly successful business based on innovative wellhead and oil drilling systems, came up with a novel method of joining two lengths of tube together.

The concept is simple enough. One tube is slipped inside the other, and then a ring is clamped around the outside. When gradually tightened, this forces the outer tube tight onto the inner tube. Once locked together, the force of friction prevents the inner tube from slipping. Such is the simplicity of the Pos-Grip.

Though it could have various applications, van Bilderbeek designed the Pos-Grip with the oil industry in mind. This is because it has one very significant advantage over the systems currently in use.

As part of the process of setting up an oil well, it is necessary to terminate and seal the well casing strings (the pipes within the well through which oil is extracted). The majority of systems used today require that the well’s Blow-Out Preventer (BoP) – a large valve that can seal off a well that is being drilled or worked over – be temporarily removed while this takes place.

The removal of the BOP is a process described by Plexus’s non-executive director Augusto da Mota as akin to a driver disconnecting the brakes every time he changes gear. Removing it costs the industry huge sums of money, owing to the downtime necessary to perform the procedure. But it also poses a major safety risk and has resulted in numerous blow-outs over the past few years. The Pos-Grip entirely removes the need to peform this complex and risky process.

But while the Pos-Grip is regularly specified for High Pressure/High Temperature gas wells, van Bilderbeek believes that it should be used far more widely. But one big obstacle stands in the way…

How Plexus could profit from the post-Deepwater shake-up

To fulfil its potential the Pos-Grip needs to get the blessing of the all-important American Petroleum Institute (API). This organisation sets the standards for the industry and determines which equipment should be used.

The API, which is largely made up of representatives of the big American oil and oil service companies, has been in no hurry to accept a potentially disruptive outsider.

Now though, following BP’s Deepwater Horizon incident, the API is coming under pressure –not least from Barack Obama.

Last week the US president suggested the oil companies and the API have a “cosy relationship”. He added: “It seems as if permits were too often issued based on little more than assurances of safety from the oil companies. That cannot, and will not, happen anymore.”

So, with oil now lapping at the shores of Louisiana, the API could start to pay rather less attention to the vested interest of the big US oil equipment companies and rather more to the merits of the Pos-Grip.

Even so, van Bilderbeek remains wary. For one thing, he is afraid that the true cause of the BP disaster will be lost amid the finger-pointing and the welter of legal claims that are already emerging. “In the old days when there was an accident,’ he said, “everybody wanted to work together to find the cause. Today everybody blames everybody else.”

And, while he makes no secret of his desire to find a partner to promote the Pos-Grip, he is well aware of the dangers of trusting the product to a larger competitor that may be only too happy to suppress it.

The Pos-Grip, van Bilderbeek argues, should become not just the Product of Necessity, but the Product of Choice. But Plexus faces the same dilemma that challenges many other small companies – how to get broad support for a new innovation in the face of powerful vested interests.

Plexus is one to have on your watch list…

This penny share could slash the UK’s energy usage…

(This article first appeared in Penny Sleuth on 20 May 2010. Penny Sleuth is an unregulated free e-letter written by Tom Bulford and published by MoneyWeek Limited)

You have heard of the iPod and the iPad. Now get ready for the ‘imop’.

This is not some 21st century floor-cleaning device, but a smart little electrical component that could cut your electricity bill by up to 25% – and transform the fortunes of one penny share company.

The company behind the imop is ADVANCED POWER COMPONENTS (ticker: APC), a distributor of specialist electronic components.

The company has been hit hard over the last three years by two ill-timed acquisitions and the recessionary downturn. But, as chief executive Mark Robinson told me when I spoke to him last week, APC is now on the recovery trail.

Robinson believes that he can grow its tiny £2.2m stock market value at least back to the £8m that it enjoyed back in 2007. BUT, if the imop device takes off, then APC could do a whole lot better.

APC has a 19% stake in minimize Ltd, the company formed to exploit the imop. The device is already used in the United States and has been adapted by APC for the UK and other overseas markets.

About the size of a briefcase, the imop can cut the electricity consumption of heaters, motors, some fluorescent lighting or any other ‘inductive load’ – in other words, any piece of equipment that relies on a magnetic field for operation...

The unique device that could slash the nation’s energy usage

Key to the imop’s economic viability is a unique ‘sizing kit’ that instantly selects the right size of imop required to make the inductive load work at maximum efficiency. This has taken five years of development and is the reason why the imop has no competitors.

The basic science is this. Electrical power is made up of two components: active power and reactive power. Active power is the working energy source which enables the electrical equipment to perform its function.

Reactive power does not perform any ‘useful’ work. Instead its only function is to develop the electromagnetic fields in order to grind the induction windings of the motor. When attached to the motor, the imop reclaims and stores this reactive power before returning it to drive the motor.

And here’s the kicker. Because the imop recycles this reactive power, the electrical device does not need to draw any electricity from the national grid.

The result is energy savings which, according to minimize Ltd, can cut electricity bills for indus trial users by up to 25%, for offices and shops by up to 17% and for homes by up to 10%.

Backing this up is a case study from the packaging company Nampak, which tested the imop on its 16-hours-a-day, five-days-a-week printing line. It found that it could save 44,928 KWh per annum of electricity – equivalent to a 16% reduction in the cost of running the equipment. This is sufficient to give a return on the initial investment in just 11 months.

Why this pioneering penny share is one to watch

With this scale of financial return and the strong focus of all consumers to use less power and reduce carbon emissions, the imop sounds like a winner. It should certainly have government support, which is offering interest-free loans via the Carbon Trust. And if widely adopted it could significantly reduce the nation’s energy usage.

According to the European Union, 65% of total industry power consumption is attributable to motor-driven systems such as pumps, compressors and ventilation. These are responsible for 10-20% of the loss of electricity that occurs in the process of converting electrical energy into mechanical energy.

It is also a known fact that an extra 10°C in a motor’s temperature will reduce its life by half. By ensuring that the running temperature of a motor is reduced, the imop increases the lifespan of the motor.

Despite all of this, the imop has been slow to take off, and APC has not been shouting about it in the City. But demonstrations and trials have been satisfactorily conducted. I also understand that a big London property landlord is about to install the imop in one of its buildings.

So this is one to keep an eye on, especially in view of the returns that investors have made from comparable companies.

Cinpart (ticker: CNP), which sells the VoltageMaster energy saving device, saw its shares soar from 2.1p to 16p in 2009. And Sabien Technology (ticker: SBT), which sells a device that improves the efficiency of boilers, has done even better. Its shares were at 1.75p in February 2009 – today they are at 60p!

Clearly innovations such as these save money for their customers – but they can also make quick money for their investors.

Good investing,

Tom Bulford
Editor, Red Hot Penny Shares

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(This article first appeared in Penny Sleuth in May 2010. Penny Sleuth is an unregulated free e-letter written by Tom Bulford and published by MoneyWeek Limited)