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Wednesday, March 23, 2005

QinetiQ: A Future Nanotech Investment?

While reading a recent report about pSivida, the Australian-based biotechnology company focused on biomedical applications of nanotechnology, I was reminded that QinetiQ, the United Kingdom-based defense laboratory, may go public in late 2005 (QinetiQ owns approximately 11 percent of pSivida). If it does, I would encourage investors of not only pSivida to take notice but investors of Altair and Nanophase as well. The reason is because the IPO would allow the latter investors the opportunity to invest in QinetiQ’s subsidiary, Qinetiq Nanomaterials—which is Europe’s leading manufacturer and supplier of nanopowders—and thus diversify their portfolios. (Full disclosure: I do not own any stock in either Altair or Nanophase, nor am I recommending that my readers invest in QinetiQ should it goes public).

QinetiQ's nanomaterials have potential applications in batteries, fuel cells, ceramics, composites, electronics, energetics, sensors, magnetics and the material sciences. More importantly, the company is capable of both bulk production and more specialized projects suggesting it can get its products to the market quickly and in quantities that can make a difference. (Something that Nanophase has demonstrated but which Altair has not.)

As a subsidiary of Qinetiq, the company can also draw on the knowledge and expertise of its 9,000 person staff. Moreover, it can piggy-back upon QinetiQ’s existing relationships in the marine, energy, telecommunications, automotive, electronics and defense industries. As a former spin-out from Great Britain’s Defense Evaluation Research Agency (the equivalent of the U.S’ DARPA), the company has good access to the United Kingdom’s defense market.

Again, I am not recommending the stock in the event it goes public—and that is for two reasons. One, at the present time, Qinetiq Nanomaterials only comprises a small portion of the parent company’s overall value and thus makes it hard to classify QinetiQ as a nanotech company. Secondly, as a general rule, I am pessimistic about nanomaterials companies’ future prospects. I think that nanomaterials will soon become commodities and only small niche players and very big chemical giants (e.g. Dow Chemical, BASF, Degussa, etc) will be able to survive.

Moving forward, for investors who have a different outlook than me or wish to diversify their nanotech portfolio, they should watch to determine if the company can crack the U.S. market. QinetiQ’s recent acquisitions of U.S.-based Foster-Miller and Westar Aerospace & Defense Group gives it a good start, and the fact that the U.S.-based Carlyle Group (a huge players in the U.S. defense market) has a 34% equity stake in Qinetiq, also works in its favor.

Related Links:
pSivida: Down-under Company Has Big Upside Potential
Is Altair All Hot Air?