The Speculator: Quickstep share price surges 93 percent

Last week’s share pick, Quicksteps Holdings <QHL.AX> surged 93 percent from a week’s low of 15.5c to a high of 29.5c on a turnover of more than 2.2 million.

We added the Australian technology developer to our portfolio mid-week at 16.5 cents in the expectation that the company would attract increasing world attention to its patents to make composites, such as carbon-fibre mouldings, cheaper, stronger and faster than older batch-making technologies.

Two days later, on March 20, the West Australian-based company announced it was part of a successful tender to win a second research contract from the U.S. Department of Defense on development of the F-35 Joint Strike Fighter (JSF). The project will develop parameters to cure high temperature resins used in construction of the JSF via the Quickstep process.

Quicksteps has been awarded a sub-contract to support Vector Composites Inc, an advanced composites fabricator based in Dayton, Ohio, in a second Phase 1 contract ordered by the Air Force Research Laboratory, also in Dayton, Ohio, the heartland of the US composites industry.

Quicksteps, supported by an $US800,000 grant from that city, opened its “centre of excellence” plant next to the Vector establishment in October, 2006, under a joint operating agreement with the American company. Since the opening of that centre, prototype and demonstration work has been completed for aerospace giants Sikorsky Aircraft

A final report on Phase 1 is due later this year. If successful, a larger Phase 2 contract may be awarded for F-35 JSF component fabrication, testing and qualification.

At a share price of 28 cents, Quicktrack’s 162.4 million shares carry a market capitalization of $45.5 million, with net cash remaining at the end of December of $4.6 million.

Since then, however, the company has lined up a $A10 million convertible loan agreement with Al Farida Investments Co LLC, a diversified conglomerate headquartered in Abu Dhabi, in the United Arab Emirates.

The funds may be drawn down in $2 million tranches at intervals of 90 days. The loan will be interest free and convertible by the lender into up to 50 million Quicktrack shares at 20 cents.

Since conversion of the loan could require Quickstep to issue more than 15% of its current issued capital, and could result in Al Farida potentially obtaining a relevant interest of more than 20 percent Quicktrack, a meting of Quicktrack shareholders will be called shortly to seek approval for Al Farida’s conversion rights. Shareholders should then learn more about an associated deal appointing Al Sahel Trading Agencies LLC as agent to secure business for Quicktrack in the UAE or wider region.

Contract upgrade for Laserbond

Our punt on engineering services company Laserbond (LBL) firmed last week on an announcement that the company had won a three-year contract that would generate revenue of $2.8 million for the company’s Ingleburn, NSW, plant.

As it turns out, that was a gross understatement. For the company today has put out an amended announcement that the contract would generate about $9.6 million over the next three years, or $3.2 million a year. That represents a 30percent increase in turnover at the Ingleburn location, beginning from July 1, 2009. The contract is with major pump maker Weir Minerals Australia (formerly Warman International), for the supply of a range of machined and coated components.

That should result in a significant boost to both revenue and earnings. Laserbond earlier reported sales for calendar 2008 of $6.8 million and earnings before interest and tax of $1.4 million, which included only three week’s trading from the company’s newly acquired Peachy’s engineering business in Queensland.

Laserbond enjoys some recession-proof features with its leading-edge expertise in machinery maintenance and surfacing technologies, work that must be carried out whatever the state of the economy.

As reported in last week’s column, we first bought into Laserbond after the company won an Australiawide maintenance on rolling mill presses for Alcoa Australia and was undertaking surfacing renovation of cylinders sent out from the American parent.

Alcoa has two rolling mills in Australia, one at Port Henry (Geelong, Victoria) and the other at Yennora (NSW). Both specialize in making aluminium beverage cans and closures while their foil making has been shifted offshore the China. It is claimed that Laserbond’s roller coating technology will extend the recycled life of a $30,000 roller by five times, up from two years under previous technology to ten years.

Alcoa’s capacity in Australia is about one-tenth of its five rolling mills in the USA. The roller unit sent from America for refurbishment is now back in business at Alcoa’s Lancaster plant in Pennsylvania. If the parent eventually likes the results and switches its roller coating to the Australian technology, such a move could be a company maker for Laserbond.

At 11 cents, the company’s 65.5 million shares carry a market capitalization of just $7.2 million. I expect in the next few weeks the company should provide some guidance to the market on its likely future trading outlook since so much has changed in the scope of its activities in the past year.

How the portfolio stands

Company	ASX code	Shares	Bought	Purchase price*	Value 24.03.2009
Viralytics	<VLA.AX>	50,000	31.12.2008	$0.040*	$0.039
Laserbond	<LBL.AX>	20,000	04.07.2008	$0.100*	$0.120
EMT Corp	<ETC.AX>	20,000	01.08.2008	$0.240*	$0.230
Citigold	<CTO.AX>	50,000	16.09.2008	$0.274*	$0.205
Robust resources	<ROL.AX>	50,000	13.02.2009	$0.130	$0.240
Quickstep	<QHL.AX>	20,000	16.03.2009	$0.165	$0.270

Total value of portfolio: $36,600
Cash at bank: $11,200
Total: $47,800
Portfolio change since 1.1.2009: +19.5 percent
All Ordinaries change since 1.1.2009: -3.88 percent

Portfolio notes

Disclosure: The author's family holds shares in Laserbond