Graphene: invest with care for a long-term return

ANYONE doubting that Manchester is still a cutting-edge industrial city, at least in terms of its intellectual capital, need only consider graphene. In less than a decade since it was isolated by two scientists at the university, Andre Geim and Konstantin Novoselov, this supposed wonder-material has stormed the world, winning them the Nobel prize for physics and prompting an explosion of inventive activity. At the last count, nearly 10,000 patents or patent applications have been filed globally.

Given the remarkable properties claimed for graphene – which derives from graphite and is comprised of a single layer of carbon atoms – that’s hardly surprising. The thinnest material yet created, it is ultra-light, fantastically heat conductive and tougher than steel. Yet it is also transparent and as malleable as rubber. Proponents argue it could revolutionise everything from electronics and drug delivery to food packaging and manufacturing – especially if it puts industrial 3D printing on the map. Unbreakable, foldable, touchscreens for mobile phones are just one application in the pipeline.

There are even claims that graphene could pep up love lives. Another team at Manchester is working on combining it with latex to create a stronger, thinner “more pleasurable” condom. The Bill and Melinda Gates Foundation is so excited about the potential of this super-johnny that it has donated $20m to the project – on grounds that if more people are persuaded to use one, it could prove a significant weapon against HIV.

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If the hype around graphene has been building of late, so has the financial froth. In January, the UK Financial Conduct Authority warned that boiler-room scammers had zoned in on it as an easily exploitable new niche – in the same mould as previous dodgy investments like rare earth metals and carbon credits. Indeed, as far as your average ruthless conman is concerned, graphene is in a sweet spot. Many people have vaguely heard of its super-qualities, but they don’t know it could be years before products actually hit the market. What’s more, the regulator warns, prices are “expected to fall in coming years”.

That’s true enough. Graphene is still in its research phase and production remains limited. But as more plants come online, prices will certainly fall. And there’s every sign that China – which currently leads the patent race – is gearing up for a big industrial push. The same is true in the US and South Korea and even the dozy EU has launched a €1bn research programme.

The FCA says it has yet to see any “convincing” evidence there’s a viable market for retail investors to make money. But just because graphene comes with big caveats doesn’t mean there aren’t opportunities beyond those dangled by cold-calling cowboys, who are best avoided whatever they’re peddling.

Indeed, had you backed Allied Graphene Materials – a home-grown player, spun out of Durham University – when it floated in November, you’d now be sitting on a cash-wad considerably thicker than a single layer of atoms. Shares are up more than 200 per cent from their 155p launch price. Investors are punting that AGM, which manufactures high purity, top quality graphene, is a potential national champion.

Market appetites will be tested again later this month when another graphene specialist, Haydale, debuts on Aim. Instead of making graphene, Haydale finds ways to use it which, theoretically at least, should make shares less vulnerable to price drops.

Another company with a similar remit is Cientifica, already listed on Aim, which plans to invest in early-stage graphene users and has identified several markets it thinks could be winners , including energy storage, heating, and filtration technologies

As David Thornton, who follows the market for Moneyweek, points out, early stage investments linked to exciting new technologies are always risky. But they tend to go in three phases. In the first, “investors dream of seemingly limitless upside potential”. In the second “cold light of day” phase, “the market ponders the problems of commercialising the technology” and stocks often fall back. In the third, companies start making money, shares rebound and perhaps overtake their previous peaks. “If you bide your time and pick up shares in the neglected second phase, it’s possible to find bargains.”

We’re not there yet with graphene, but this is certainly a potentially blockbuster market to monitor, if you can steer through the hype and are prepared to be patient.