RingProp plc

This company pulled one of the great coups of any Aim stock when it formed a joint venture with J.L.French International,a wholly owned subsidiary of ONEX Corporation of Canada, a multi-billion dollar company with a world-wide reach.J.L.French approached the company in the first place having done their homework on the size of the outboard marine propeller market and thoroughly reviewed their intellectual property.As one the leading aluminium die -casters in the world yhey are held to ransome by the auto-industry with 5 year contracts with an annual unit cost reduction of 5% per year.They saw this as a volume oppurtunity outside the motor industry annual sales of outboard propellers being in excess of 10 million per year.
Open-bladed props are lethal and cause thousands of injuries per year as well as many deaths of humans as well as causing huge environmental damage killing Manatees,Turtles,Dolphins,Whales and other different species in their hundreds if not thousands every year.The ringed prop., with an aerofoil attached to the circumference of the prop therefore creationg a one piece prop. with no exposed blades,is a one piece prop. not a propeller turning round within an external ring.It is unique and has been developed over 20 years or so.It has considerable performance advantages such as superior acceleration,more pulling power,it does not cavitate on high-speed turns,anti-fouling,no torque steer,no need for trim tabs or steering friction adjustments and demonstrably safer if it hits an object.The ring bounces off a solid object and does not fillet.Aprop. with 3 blades will strike an object at 160 times a second revving at 3200 revs.We probably have friends or friends of friends who have suffered death or serious injury in boating/water-skiing accidents---although serious bruising will result from a RingProp strike there will not be a serious filletting from an open-bladed prop.[a giant razor-blade]which cauesw death from blood loss or toxic shock let alone severance of limbs etc.
Last December ther was a lanmark case in the States where the supreme court in an unanimous verdict held Mercury responsible for the death of Mrs Sprietsma who fell out of her boat and was then run-over and killed by the propeller.This was a first because in the past the OEMs have been able to shelter under Federal law rather than State law.In this case the Federal rules are laid down by the Coast Guard who do not yet require a propeller to be sold with a "guard or CAGE".However they are movung rapidly in that direction with House Boats for example.The State of Illinois does require a prop. to be sold with a cage or guard.Boaters are very reluctant to use them because performance is affected by up to 60%.The Ringed prop. is clearly safer and has performance advantages one of which is fuel efficiency apart from the other advantages already mentioned.

J.L.French has it's headquarters in Michigan one of the major prop. consuming states and they have done their homework.Hence the joint venture.The prospectus indicated that the co. hoped to sell 275000 propsin their financial year beginning October 1st 2004.However that was before the j.v with J.L.French and befiore the decision was taken to make the prop. out of aluminium which represents 82% of the prop. market with stainless steel a firther 14% and composites the remainder.Composites are considered to be inferior so, despite the very obvious advantages of the design,a major marketing would have had to be made.This makes the target of 275000 props out of a world market of 10 million props annually are modest target in the new circumstances.The co will have the production taken care of by one of the world's experts in this field and the assistance of the Parent co. in distribution giving it a world-wide reach.In addition the RingProp co. will pay for the dies or tools with equity which has already been put into an escrow account.J.L.French will end up with an equity stake in the co. of at least 10% or more and RingProp should need to come back to the market for more funds since this arrangement will save £1 million over the next 18 months.This j.v. is very rare in an early stage co. on Aim and is a company maker.
If they achieve sales of 275000 props[which should be relatively simple with this must-have product]income will exceed £13 million selling the props. at £50 per unit and retailing at an average price of £140.THE COMPANY EXPECTS TO GET MORE THAN £50 PER PROP.Total costs should not exceed £5,5 million giving a pre-tax profit of £7.5 million.there 6.2 million shares in issue accounting for the first shares issued to J.L.French.With a full tax charge[which will not be the case]net earnings would be 85p per share.But this is only starters only scratching the surface of the world market.Sales of 500000 props would be a turnover of at least £25 million and so on.
It seems to me highly unlikely that a major international holding co. would approach a small co. such as RingProp and form a j.v. without good reason.Simon Cawkwell seems to have realised this with his comments this morning.The correct rating for the shares ??I suggest 20 times 2004/5 earnings with so much more to come.