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Getting in on the ground floor with a “next big thing’ stock is an investor’s dream.  However, dreams of outsized returns in “next big thing” companies can at best turn into dreams deferred and at worst into nightmares.  Aussie investors who bet on the “Golden Age of Gas” in Australia are still patiently waiting.  While the potential remains, the negative perception of the Liquefied Natural Gas (LNG) boom and the Shale Gas Revolution may have made investors a bit sceptical about a new “next big thing” to come along.

What constitutes a “next big thing” varies, but in general it is safe to say anything that has the potential to change the way humans do things qualifies.  Steam engines begat the Industrial Revolution and personal computers, modems, the Internet, and smartphones have ushered in the Information Revolution.

Investors who frequent the financial websites and other market news outlets around the world have probably been exposed to the hype and promise of a technology labelled “3D Printing” as the latest “next big thing.”  Those who prefer to keep their investment dollars at home may have not felt the need to research 3D Printing, since there is as yet no 3D Printing stock on the ASX.

That is about to change as Melbourne based 3D Group is reportedly eyeing a spot on the ASX through a reverse takeover.  Traditional Initial Public Offerings (IPO) are costly.  Taking over the CODE symbol of an existing ASX company with minimal assets and future prospects is a cost effective alternative.  The plan is for tiny Oz Brewing (OZB) (market cap of $2.4 million) to “takeover” privately held 3D Group for shares and options.  There are some regulatory hoops, shareholder approvals, and a capital raise to jump through, but should the deal go through Oz Brewing would then stop brewing beer and get into the 3D printing business!  

So what can Aussie investors expect from 3D Group?  To address that question let us first briefly review 3D Printing technology and its upside and downside; and then look at the performance track record of four existing publicly traded 3D Printing stocks.

Additive Manufacturing is another term for 3D Printing but for whatever reason; the latter is now the descriptive phrase for the industry.  Perhaps the explanation lies in the ease of visualizing the process in comparison to standard printers with which everyone is familiar.   With the 2 dimensional printers, ink is deposited on a flat surface in shapes dictated by printer software.  The simplest explanation for this new technology is it adds multiple layers of differing materials to build 3 dimensional shapes dictated by the software.  

Additive Manufacturing for commercial and industrial use has been around since the 1980’s, creating both product design prototypes and more recently replacement parts.  If you take the time to read between the lines of what the skeptics say about the over-hyping of 3D printing technology, most of it is confined to consumer applications.

The futurists rave about the ability of this technology to allow consumers to create objects for their own use by themselves.  The falling price of consumer 3D Printers over the last two years has put the hype in overdrive.  Skeptics justifiably point out that as of right now, the consumer is limited to “printing” plastic objects no larger than a loaf of bread in a single color.  In addition, the software needed to design your own custom household items is complicated and the printing process itself can take hours.  

Futurists remind skeptics of the early days of single font, single color dot-matrix printers operating at a snail’s pace; not to mention the joys of staring at a blinking cursor trying to remember the MS DOS command needed to get the computer to do what you wanted it to do.  Technologies like ink-jet infusion and laser printing changed all that and Windows revolutionized the PC world.  Before the advent of browsers, navigating the Internet was more complicated than navigating MS DOS.  

While the dream of a 3D printer in every home remains challenging, industrial and commercial uses of 3D Printing technology are expected to pick up speed as the costs of the large scale industrial printers drop and the technology continues to evolve.

Right now you have General Electric, Boeing, and Ford using 3D Printing technology to make parts.  Nike “printed” cleats for its shoes used in the 2014 Super Bowl in the US and Hershey is designing and “printing” chocolates.  In what would have seemed science fiction a few decades ago, 3D Printing is already used to create human body parts replacements, such as custom-fitted jawbones and orthopedic implants.  

Large scale 3D printers are not limited to plastic; suitable materials include titanium, ceramics, wood, aluminum, powdered stainless steel, and gold and silver.  From an investing point of view, the business model of 3D Printing companies is ideal, as revenue does not stop with the sale of the printer.  Both privately held and publicly traded 3D Printing companies offer a range of supplies and services needed to keep the printers up and running, which means recurring revenue streams.

Independent research firm Canalys is one of several with robust growth estimates for this potentially disruptive technology.  Canalys forecasts the sector revenues rising from $2.5 billion in 2013 to $3.8 billion in 2014.  Over five years, the firm estimates a year-over-year growth rate of 45.7%.  To put that in perspective, that is a 500% increase in five years.  An analyst at the firm stated the sector “has now moved from a new and much-hyped, but largely unproven, manufacturing process to a technology with the ability to produce real, innovative, complex and robust products.’

Finally, although consumer adoption of 3d Printing faces more hurdles, investors should take note of the recent launch of the 3D Printing Store on Amazon.com. The store currently offers around 200 products that allow consumers to customize the product before it is produced via 3D printers.  In addition, Hewlett Packard, the world’s largest printer manufacturer, is planning to introduce a consumer 3D Printer sometime in 2015.

With that brief overview of the technology, its applications, and its potential, let us now look at some publicly traded 3D Printing companies from US stock exchanges.  The first two are industry leaders with decades of experience while the final two have been publicly traded for less than two years.  Here is the table.

Company

(EXCHANGE:CODE)

Market Cap

Share Price

52 Week % Change

EPS Next Year

EPS Next 5 Years

IPO Date

(Open/Close Price)

Stratasys

(NASDAQ:SSYS)

$5.46b

$109.45

+16%

+35.5%

+29.4%

21 Oct 1994

($90.54/$89.42)

3D Printing Systems

(NYSE:DDD)

$5.42b

$48.98

+7%

+46.22%

+29.3%

5 Nov 1990

($4.25/$4.25)

ExOne Company

(NASDAQ:XONE)

$397m

$28.66

-54%

+56%

+126.1%

7 Feb 2013

($23.66/$26.52)

Voxejet Ag ADR

(NYSE:VJET)

$242m

$15.81

+61.1%

18 Oct 2013

($20.00/$28.80)

 

Additive Manufacturing was born at 3D Systems Inc. (DDD) back in 1984 while rival Stratasys (SSYS) created the plastic infusion technology that led to the term 3D Printing.  3D Systems captured the imagination of investors with its relatively low cost consumer focused 3D Cube Printers.  Not to be outdone, Stratasys bought the privately held company that produces a competitive consumer 3D printing line, MakerBot.  

Both companies also operate in the industrial/commercial space and both have suffered year-to-date from waning investor enthusiasm as some analysts began using the dreaded “bubble” word to describe the dramatic rise in share prices.  From Yahoo Finance US here is a one year price chart for the two companies.

The two newcomers to the sector have no consumer exposure and both have seen dwindling share prices.  Back on 15 August of 2013 XONE closed at $63.49 while German-based Voxejet AG (VJX) that trades in the US under the American Depository Reserve system (ADR) fell from its first day close of $28.80 to the current $15.81.  

In addition to diminishing appetite for 3D Printing stocks, both these companies reported disappointing results on 14 August, further disappointing investors.  Here is a one year chart for XONE and VJET.

With both 3D Systems and Stratasys already operating in Australia, why should Australian investors take any notice of a fledgling local start-up?

3D Group has designed and built one of the world’s largest industrial use 3D Printers, right here in Australia.  This is a company with grand plans with a stated goal of becoming “Australia’s leading integrated multi-platform 3D printing company.”  The company’s strategy calls for the manufacture of custom-made 3D printers, and expansion of 3D Printing and related services for product development, healthcare, architecture, and even education.  In order to better prepare young Australians for the jobs of the future, 3D Group intends to get 3D Printers in classrooms around the country.  Finally, the company has an ambitious plan for Retail Kiosks, where consumers could have an item or even themselves scanned and transformed into a 3D image.  

Grand plans require capital and the ASX listing is for the express purpose of raising funds for expansion.  While the proposed reverse takeover calls for a capital raise in September, the shares are not expected to list on the ASX until mid-December.  However, the reaction the announcement of the takeover made on 31 July may provide a clue.  Here is a one month price chart for Oz Brewing (OZB).

The stock price has fallen back to earth a bit, perhaps as investors realized owning shares of OZB is no guarantee as the reverse takeover is still in the proposal stage.  However, there is one more compelling reason to watch what happens with 3D Group, and it may prove to be the best reason of all.

The limitations of existing materials suitable for 3D Printing applications are well known, but advancements are bringing new materials into play.  One of those materials is something called Graphene.

Even the most ardent skeptic would have to admire the properties of this graphite/carbon based material.  A sheet of graphene is as thin as a sheet of cling film, yet it is 200 times stronger than steel and tougher than diamonds.  It can be stretched and best of all, it conducts electricity.

The race is on to enable a Graphene enhanced material suitable for use with 3D Printing.  On 10 July of 2014 3D Group entered into a joint partnership with ASX listed graphite mining company Kibaran (KNL) to form a research and development company called 3D Graphtec Industries for the express purpose of pursuing patents and collaborative partnerships to further the application of graphite and graphene in 3D printing.  

Investors liked what they heard and the KNL stock price came close to tripling before falling off.  Here is a three month chart.

Australian investors are not alone in their blood-pumping response to the potential of Graphene.  On 11 August a Canadian company called Graphene 3D Lab also used the reverse takeover to go public on the TSX -V (Toronto Stock Venture Exchange).  The company focuses on the development of high-performance graphene-enhanced materials for 3D Printing.  It began trading under the symbol GGG.V and shot up from $0.40 to $1.20 in three days.  Here is the chart, from Yahoo Finance Canada.

There are other ways to play the 3D Printing potential, including software manufacturers; but based on market reaction to these Graphene related stocks, miners of the graphite needed for Graphene would seem to be another place to start looking.

Click on the links below to read other articles from this week’s newsletter

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