IT could be the news Orbital Engine Corporation investors have been waiting for.
While they continue to hang out for a dividend – September 1988 was the last time one was paid – Perth-based Orbital says things are looking up.
Although it is just about to report a loss of $27&nbs p;million and its shares sit at record lows, the engine technology developer says it is cash neutral and looking forward to a profit next financial year.
In addition, it got a confidence boost this week when it was praised by the world's largest four-stroke automotive supplier, Delphi Corporation in the US.
Analysts say it is a significant accolade that could lead to multimillion-dollar contracts.
At an energy conference in Detroit, Delphi said Orbital had one of the most promising fuel-efficient technology systems.
"The Orbital Combustion process has demonstrated impressive gains in fuel economy without the emission compromises inherent in other approaches," it said.
Delphi also is working with Orbital to produce an automotive fluid spray system.
Paterson Ord Minnett analyst Robert Gee said: "If they do win a four-stroke motor vehicle contract, their share price would take off like a rocket."
Orbital director of business development Ken Johnsen is confident the endorsement will generate profits.
"A lot of people are waiting for real confirmation we are a player in the automotive world," Mr Johnsen said. "We're confident we are, but we need to demonstrate that in a tangible way to the investment community."
On the heels of the good news, the company is expected to post a $27.2 million loss for the year ending June 2002 – slightly worse than last year's $26.8 million loss. It blames the result on poor sales and tough market conditions.
"We have been looking for more work," Mr Johnsen said. "But over the last year downturns in the automotive and marine industries meant we were not as successful as we had thought."
Orbital technology is used in products such as jet-skis, motorbikes and boats.
Critics maintain the company lacks sufficient cash reserves which, according to company reports, stood at $22.1 million in December.
Mr Johnsen admits that over the past decade Orbital has spent heavily on research and development rather than focusing on commercialising present projects for immediate profits.
Synerject – its joint venture with Siemens – has also been draining cash and the company has been in and out of profitability for several years.
Disgruntled investors have been offloading the stock, and it has slipped from a high of $5.36 in 1991 to a low of 25.5c this week.
But some analysts are as positive as the company's board about a return to the black.
Mr Gee placed a speculative buy recommendation on the stock. He said Orbital's new CEO Peter Cook was cutting costs and preserving cash reserves.
"I don't see a downside," Mr Gee said. "Revenues will continue to come through from motorcycles, scooters and so on, and any four-stroke contracts will be seen as a bonus."
Former Ansell boss Mr Cook, appointed in February, has pursued a staff-cutting program which he has said will save $1 million this half-year.
He also has worked to generate fresh income, and this week reportedly was in Europe negotiating new contracts.
A combination of increased sales and a reduction in Synerject losses would save $7 million this half year, he said.
Mr Cook said in February that Synerject would be a $200 million company in three to five years.
The company is also determined to stop throwing money into research and development rather than focusing on immediate returns.
"We have to sharpen the commercial pen and not spend that money," Mr Johnsen said. "If the customer wants it, they will have to put some money in to help fund it.
"We're going out of the development phase where we had to invest money – now we hope to get into harvest mode where we are harvesting the seeds we've planted over the past 10 years."
Mr Johnsen said the future was promising.
"There's new developments and products being introduced and we are growing," he said. "Consumers can buy at least 17 products that use Orbital technology.
"In 2000 there were 10 products using it and in 1999, five.
"It's a rapidly increasing curve."
Sunday Times (WA) http://finance.news.com.au/common/story_page/0,4057,4255192%255E462,00.html
Regards
Desmond
OEC Price at posting:
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