Guest Pitch: Nanoco Group (NANO.L)

Potential Buyout: 50% upside (at 9.7p)

This idea was shared by Daniel.

I think this is a really interesting case. It’s a nanocap, which trades barely above cash, despite an ongoing sale process and a low-risk litigation offshoot. There’s potential for 50%+ upside, while downside should be limited to ~10%. I think it’s incredibly hard to lose money here.

Nanoco is a developer of cadmium-free quantum dot technology (CFQD), used in TV screens and other applications. It was spun out from the University of Manchester and has been listed on the London Stock Exchange since 2009. Once worth over £400m, the company has steadily fallen out of favour with investors over the past decade and now trades at £19m market cap, compared to £15.2m cash as of Mar’25.

After a key European customer walked away in August 2024, Nanoco launched a strategic review, completing it in October 2024. One of the conclusions was that the business is not fit for public markets due to its tiny scale, limited customer base, a niche technology focus, and a business model that has effectively been serving as a research partner for larger chemical, electronics, and semiconductor companies. So Nanoco immediately appointed a financial advisor and initiated a formal sale process for the company:

The group’s trading business clearly remains in the scale up phase of business growth and is exposed to what can appear as binary decisions by a concentrated customer base of global players. The Board therefore believes that it is now prudent to consider if the growth and investment in the trading business and IP assets would be best led in a different ownership setting than allowed for as the sole business of a listed group given also the costs of the Company’s listing.

So far, the company has reached out to more than 200 targets globally, a small number of which have progressed to the next phase of due diligence. Initial non-binding bids are expected this summer. Management has signalled they are in a good position to have an agreement signed by the end of the calendar year. As for the long timeline, management explained that Nanoco isn’t a business that’s easy to understand. Given its niche focus, it needs time and requires casting a wide net for potential buyers.

Potential buyers of the IP or entire company could include:

• Chemical companies such as Dow or Merck (eg. Nanosys in 2023, undisclosed).
• LG Corporation specifically, as an alternative to settling the current legal claim from Nanoco.
• Consumer electronics companies, such as Samsung.
• Other strategic buyers, such as semiconductor firms like STMicroelectronics (a previous Nanoco customer).
• A specialist litigation funder (potentially IP only).
• Other financial investors, such as private equity or later-stage venture capital (the least likely and value-generating in my opinion).

In a scenario where the company is sold at the end of this year, I see 50% potential upside from the current levels.

Both the current CEO and the Chairman joined Nanoco right after the sale process was launched (CEO in Oct’24 and chairman in Jan’25). The ex-CEO was not an expert in this field having held CFO positions at various listed businesses around Manchester in unrelated industries (manufacturing/IT). In contrast, the new CEO not only holds a PhD in Materials Science, but has M&A experience in the semi industry. The new chairman, Dr Jalal Bagherli, was CEO of Dialog Semi for 15 years before it was sold to Renesas. Having this direct semi and M&A experience running the ship gives me confidence that this hasn’t devolved into the typical UK nanocap plaything.

The CEO has M&A experience and holds 0.9% of shares alongside nil-cost options. One of the founders, Dr Nigel Pickett, owns 3.8%. All non-executive directors have deferred 50% of their fees until the end of July or a sale. US activist Cable Car Capital owns 3.2%.

The company is also open to making a number of distributions of surplus cash this year. Given the way this was phrased, it seems that the initial capital return could be made quite soon and is not contingent on the ongoing sale process. Further returns would probably depend on how the sale process goes (management is open to selling both, the whole company or only the operating business/IP).

The Board is determined to deliver shareholder value as rapidly as possible. In light of the plans set out above, the Board believes that it is now appropriate to commit to a return of surplus cash to shareholders during the course of FY25, and intends to return an initial sum of cash via a capital return following the release of the FY24 report and accounts. The timing and size of further returns of surplus cash will be contingent on the completion of the right-sizing noted above, working capital needs, and progress on the execution of a potential sale process.

Interim results released in April’25 confirmed the potential surplus cash distribution once again (without any specific details yet). So it seems it’s still in the cards and could serve as a more immediate catalyst than the sale.

In addition to the ongoing sale process and potential return of excess cash, a third key catalyst is the ongoing patent litigation with LG, which adds meaningful optionality. Below, I’ll break down the background on Nanoco, the LG lawsuit, and the valuation under different outcome scenarios.

 

Quick background on Nanoco

You may have seen quantum dots advertised on TVs under labels like QLED. They are tiny semiconductor particles, a few nanometers in size. So far, the use cases for quantum dots have been largely concentrated in displays and lighting, with emerging applications in areas like sensors and photovoltaics. Early concerns for quantum dots focused on the use of cadmium, a known carcinogen. Owing to environmental pressure, the EU has limited the use of cadmium in QD applications since 2017. China also introduced its own RoHS standards and environmental pressure will likely provide momentum in other jurisdictions.

Nanoco is a pioneer in cadmium-free quantum dot technology (CFQDs). It operates a manufacturing facility in Runcorn, UK, which is currently one of the only sites in the world capable of producing CFQDs at scale, with management suggesting potential capacity exceeding the equivalent of 500m devices per annum. PP&E has a book value of only £1.6m.

The company also has an extensive intellectual property portfolio consisting of over 350 patents, around 50 of which expire over the next 5 years. These have been proven to be useful technologies for OEMs in display and sensing.

LG and Samsung are probably the two biggest brands in QLED, but there are other sizeable manufacturers (e.g. Sony). There are also other consumer electronics companies such as Apple, which is reportedly using cadmium-free QDs in its latest MacBook Pro. There is clearly growing interest in this technology for new applications, and a very limited number of channels available to procure it without paying Nanoco a toll in some form. It is estimated that 40% of QD TVs sold last year (excluding Samsung) used cadmium-free technology. The company believes that virtually all of those, if mass produced, would require the licensing of its IP. It’s worth highlighting this excerpt from management, from the strategic review in October:

After further investigation, Nanoco is confident that a growing number of third parties are using the Company’s IP. As a business actually using its IP in its own operations, Nanoco is much more strongly placed to both successfully enforce that IP and also to achieve a better outcome than other non-practising entities.

Nanoco extracted a big $150m patent infringement settlement from Samsung two years ago. The company filed the suit in February 2020, accusing Samsung of using its CFQD technology in TVs since 2017. Midway through the trial in 2023, Samsung settled for $150m (£125m), with Nanoco retaining $90m (£75m). Out of this, £33m was returned to shareholders and subsequent buyback in 2024. Also worth noting that the PTAB (patent watchdog) validated all five core Nanoco’s patents defended in the litigation, only one of which was sold to Samsung.

Besides patent litigations, the company has historically earned the majority of its money from research agreements, with follow-on licensing usually contributing the remainder. These agreements usually only cover development costs so there is little profit to be made. Nanoco also charges customers a one-off fee for utilising its IP, rather than ongoing royalties.

The company is currently in negotiations with several potential partners exploring the use of its technology in segments such as electronics, sensors, agriculture, coatings, and paints.

 

IP Value

Overall, it’s not easy to say exactly how much the residual IP could be worth. Nanoco’s earliest patents—some of which were used in the Samsung lawsuit—cover the quantum dot synthesis and expire between 2026 and 2029. An additional ~250 patents cover both synthesis methods and applications in displays and image sensors, with expiries stretching into the 2030s and 2040s. Management has described these newer patents as “intertwined” with the earlier ones.

The portfolio clearly holds value—otherwise, it’s hard to imagine either the potential bidders or Nanoco committing to a year-long sale process instead of simply liquidating the company after last year’s strategic review. This is IP that has already generated over $150m in settlements and millions in revenue, with large potential markets like photovoltaics still untapped. As a result, I believe the value of the IP to be at least £10m, and could be far higher.

This IP is valued on the balance sheet at £46m. This valuation was apparently assessed and confirmed by an external advisor. Realizing anything close to that balance sheet value would obviously be massive for this thesis, but probably not very likely.

The company also owns a number of trademarks, including “CFQD” in most major markets, and “QDTV” in the EU, Japan and UK. Since the value of these are hard to determine, I am not including them in my sum of the parts valuation.

There are a few comparable patent-related transactions. Samsung acquired QD Vision in 2016 for $68m, and also licensed Nanosys IP for $28m. Nanosys itself was purchased by Shoei Chemical in 2023 for an undisclosed amount, likely well into double or triple figures given its leadership position and cumulative fundraising of $250m.

 

New LG litigation

A few months ago, Nanoco announced another patent infringement lawsuit against LG Electronics, alleging, much like in the Samsung case, that LG has violated its IP with relation to quantum dot TVs. Nanoco has retained the same Dallas-based lawyers that achieved the Samsung win.

As for how likely Nanoco is to win, their staff has conducted teardowns of LG products and detailed analyses under an electron microscope to determine whether to proceed with a claim, which will incur costs to the company until litigation financing is arranged. The successful enforcement of Nanoco’s patents against Samsung adds further confidence.

How much could the LG litigation be worth? Using a proxy for QLED market share in the Premium TV segment, we can see that LG is noticeably weaker than its Korean rival, with around a third of ex-Samsung shipments. Given Samsung has nearly 50% of overall QLED share, that would make the number of units affected roughly 6 times smaller (18m overall units x 40% CFQD share x 20% LG share = 1.4m units vs 8.3m Samsung). Assuming an equivalent settlement amount to Samsung and a similar financing arrangement would mean net proceeds to Nanoco of £12.5m, almost equal to the current market cap. This seems like a reasonable guess, although, in reality the numbers could turn out very differently.

For example, Nanoco’s technology was supplied to LG between 2015 and 2019 through a partnership with Dow Chemical, which served as Nanoco’s manufacturing partner in Asia. The partnership was terminated in 2019 after failing to achieve meaningful commercial scale. LG also stopped using technology from Dow in the same year. It’s unclear whether this history could impact the litigation. The situation is clearly a bit more complicated than the Samsung lawsuit (as Samsung did not have any similar commercial affiliations with Nanoco).

 

Valuation

The most likely scenarios from here are:

1. The company is sold following the ongoing bidding process;
2. The company is not sold but wins a settlement in the LG litigation;
3. The company is neither sold nor secures a settlement from LG.

Under scenario 1, SOTP would look something like this:

As of last March’25, the company had £15.2m of cash. This compares to the current £19m market cap. There is a bit of cashburn, so I estimate that at the end of the year the cash would drop to £11m.

Edison, the main analyst covering, still expect YE cash to be £13.5m (so £2m burn from Jan), as the new joint development agreement (JDA) with the second Asian chemical customer roughly offsets any legal costs. I deliberately chose lower than this to account for any uncertainty + M&A fees, so I think £11m is reasonable and should account for a slight delay into the start of next year. The cash cost is £0.5m p/m but revenue is looking like at least £6-7m this year.

A buyer would not be willing to pay 100% of the value of an LG settlement so I have reduced the realised percentage from 60% to 30%. Using the conservative valuation of the residual IP produces an equity value of £28m, upside of 50%. Valuing the IP at £20m would increase upside to 100%.

Under scenario 2, SOTP would be as follows:

This scenario assumes higher 60% realisation of the LG settlement and net working capital accruing to Nanoco, but also a higher cash burn. Equity value would be £30m, with upside at 57%.

Under scenario 3, SOTP equity value would reduce to £17m, 10% downside from the current price, though shares may be sold off as investors question the value in the IP. I view this as the most unlikely scenario as there is a decent chance of at least a non-binding offer being tabled and more positive litigation developments.

 

Some thoughts on risks

While the Samsung litigation win looks like a major positive on paper, many shareholders had expected a significantly larger settlement (this setup was covered on SSI here). The outcome and the way the whole situation was handled by Nanoco has understandably left a bitter taste for many investors.

That said, I’m not concerned about governance when it comes to the ongoing sale process. The previous CEO and previous chairman already left the company last year, during some tensions with shareholders. In my eyes, the new management has been transparent since they came in last year.

Another risk is that some of Nanoco’s core patents begin to expire over the next 5 years, giving the company a limited window of opportunity to pursue claims. There is also growing competitive pressure in Nanoco’s niche, with at least three other entities globally now holding CFQD intellectual property – Nanosys, Dow, and also Samsung, which has now certified its entire QD range as cadmium-free. A startup in the US, UbiQD, has also just raised a $20m series B intending to mass-produce CFQDs using technology licensed from Los Alamos National Laboratory and MIT.

Overall, I believe this is a strong setup, backed by a substantial cash position relative to the share price, an ongoing sales process, and supported by potential litigation proceeds.