'Don't believe the hype!" This would be the response from any seasoned investor who deals with most junior board companies bandying about phrases such as "revolutionary product" and "ground-breaking technology".
But some serious punters took a shine to Whetstone Industrial Holdings, which made an encouraging debut on the Venture Capital Market this week. The slick start came despite hitches last month when the Johannesburg Stock Exchange's listings committee queried technical documentation for its controversial Olpex fuel additive.
Whetstone's a tough call because its long-term prospects rely heavily on the new oil additive, which permanently bonds oil and water to eliminate water contamination in fuel storage. The company also claims Olpex reduces noxious emissions in engines, lowers operating and exhaust temperatures and extends operating lifetimes.
But Olpex won't figure in the predicted R14,6 million (or 9c a share) earnings for the year to end June 1999, when most revenue will be generated from Whetstone's air courier and cosmetics/toiletries interests.
Directors assured me this week that Olpex, which incurred substantial research and development (R&D) costs in the year to end June 1998 and was mostly responsible for Whetstone's R5 million loss in that period, would break-even this year.
They also stressed that the product's development had been accounted for in the previous year and that Olpex - aside from minimal R&D - was "sellable as from today". But here's the rub. It seems that aside from a contract signed with a British company and pending presentations to Malaysian and Saudi Arabian companies there's not much product changing hands yet. The directors are confident Olpex will sell, a fact underlined by their ambitious longer-term profit predictions of R41 million (25,6c) in the year to end June 2000 and R60 million (38c) in 2001.
While it's hard to gauge exactly how the international oil companies view Olpex, I understand that a well known oil company's not ungenerous offer to purchase the patent was refused. Olpex's potential value is not disclosed in Whetstone's prospectus, but directors say patent lawyers have put "big figures" behind the product.
Unfortunately the workings of Olpex (I'm still vague even after a demonstration by inventor Justin Clohessy) are not for the technophobic, making it difficult for the ordinary investor to make a clear call on its merits. In this regard we trust shareholders will be briefed regularly on Olpex's progress.
Significantly there was some institutional nibbling at Whetstone this week, suggesting the share could be a useful portfolio liner for the smaller investor with a longer-term view. Getting in before the hype reaches fever pitch is one thing, but remember the early bird can also squirm.