Each month we trawl through hundreds of RNS statements from AIM companies. In this column we highlight an exceptional company announcement, particularly where we feel the market may not have taken full account of recent news.

Background

In this month’s snippet article I am highlighting the position at Surface Transforms (SCE). Surface Transforms manufactures carbon fibre reinforced ceramic composite materials (CRFC’s) which have particular properties useful for a number of transport applications. To date Surface’s main success has been in providing its material to be used in the brakes of high performance cars. The CRFC material exhibits good friction properties and weighs a lot less than traditional braking materials. Surface has also had some success in using its material in rocket motor components where strength at high temperatures is important.

Back in 2004 Surface Transforms shares were riding high; reaching over 80 pence. At that time the Company was expecting to provide its braking materials for a large passenger aircraft that was under development. However, surface’s product was unable to comply with the launch timetable and the deal fell away – as did the shares.

More recently Surface Transforms has also been affected by the downturn in the car market which has particularly impacted the performance car market.  Early in 2010 SCE’s shares were trading at just 8 pence, under 10% of its value 6 years earlier.

in 2004 Surface Transforms shares were riding high

Improvements

Matters have, however, shown some improvement in 2010. Although the Company has still reported losses in 2010, these have been below those of 2009. Furthermore, the Company reported in the summer that most motor manufacturers are starting to invest in new models.

In October 2010 Surface announced a ‘New Development Agreement’ with a major USA based aircraft brake manufacturer. The Company reported that: ‘The Agreement relates to the manufacture of carbon ceramic disc brakes for the customer's target aircraft markets, with a current emphasis on the military aircraft sector.’ And further that ‘The directors of Surface Transforms believe the current development work in the pre-qualification phase is nearing completion, following which formal qualification testing work would take place during the next 12 months.’

So, potentially, Surface could finally be realising its ambitions to become a significant supplier of aircraft brakes.

We were further encouraged by News in November that Surface Transforms had raised £1.2 million in a Placing and Open Offer (to all shareholders). These funds will be used to increase the Company’s in-house production facilities

At the time of announcing the fund raising, the Company explained to its shareholders the reasons for its need for expansion:

 ‘The Company currently has a number of significant commercial opportunities in two of its four primary markets, namely (1) automotive brakes and clutches; and (2) aircraft brakes; and it is in various, advanced stages of negotiating development and supply agreements with major companies who operate in both of these markets. Within the automotive market, there are three global brake system suppliers who currently purchase the Company's ceramic brake and clutch discs and they have each commenced negotiations with Surface Transforms to increase supply volumes for the forthcoming year.’

‘As announced on 4 October 2010, the Company has entered into a development agreement, which may lead to a supply agreement, with a major USA based manufacturer of aircraft wheels and brakes which represents a significant landmark in the development work that Surface Transforms has performed over the past two years.’

A Brake Through?

Surface Transforms is a small AIM company with a market capitalisation of just £6.1 million. In its results for the year to 31 May 2010 the Company reported a loss of £750,000 on revenue of just £810,000. Thus results will need to improve substantially for the Company to justify its current valuation. There are no broker forecasts published for the Company.

Shares in small AIM companies such as Surface Transforms must be considered as high risk. The exciting thing with this particular company is its potential, should it really break through into volume production in its main car and aircraft markets. It has been a long time coming but perhaps this tiddler could make it?

As always, the purpose of this Snippet column is to highlight an interesting situation worthy of further research. 

emphasis on military

aircraft sector

a number of significant commercial opportunities

Copyright Aimzine Ltd

y without prior consent. ADVFN will BAN those who post AIMZINE articles without prior permission.