If, like me, you’re a fan of the cinema, then you’ll be delighted to hear that the experience is soon to become even better. Not only is the sound and picture quality razor-sharp, but it is also now possible to watch more of your favourite films in 3D. For an idea of what this means, imagine you’re watching, say, King Kong, when all of a sudden the gorilla leaps out at you. Undoubtedly scary, but what a thrill. This amazingly real-life sensation is now possible, thanks to the patented technology developed by this company.
Gamble of the week: DDD Group (Aim DDD, 12.25p)
Traditionally, such visual effects have only been achieved if the movie has been shot using laborious 3D techniques. But this is not now the case, since DDD’s breakthrough software automatically converts 2D programmes, graphics, DVDs or video cassettes/games into 3D pictures. This makes it possible economically and quickly to generate huge libraries of 3D content.
Furthermore, new 3D-compatible flat-panel screens eliminate
the current need for viewers to wear special 3D glasses.
These screens are presently most suited for mobile phones, computers and advertising displays. However, over the next five years it is expected that they will also become commercially available for home TVs .
OK, so the software works, but what are the risks? Well, the main concern is that because the technology is so new, consumers and the digital-content industry still require time to catch on. Unfortunately, this learning process has so far held back DDD’s growth, with revenues of around £1m expected this year. Moreover, the delay has helped competition develop in this embryonic market. Finally, in line with most early-stage companies, the business is still loss-making and cash is tight. My guess is that a further round of fund raising will be required in early 2007, before the business moves into profitability sometime in 2008.
Personally, I am convinced that consumers want to watch
3D films, and therefore it is a matter of when, not if, the technology is a commercial success. You only need to look at
the popularity of IMAX theatres and HDTV. Even frugal consumers are prepared to pay for a step change in visual quality – and 3D is certainly that.
Fine, but why buy DDD now? Why not wait until closer to the possible fund raising, as the share price may drop further?
Yes it could, but I suspect that when the first mass-market
3D gadgets start rolling off the shelves, then the shares will rocket higher.
And this could occur as soon as December 2006, when a top five mobile-phone manufacturer is scheduled to launch a new handset incorporating DDD’s technology. Also, on the back of recent successes with hits such as Chicken Little, the movie industry is ramping up its production of blockbuster 3D films. In my opinion, DDD is ideally placed to win part of this high-profile business.
Being a small-cap stock, particularly operating in such a new market, I consider DDD to be high risk, but also offering very high potential returns. Indeed, this above-average risk/reward profile has not deterred Hans Snook (founder of Orange) from both becoming a non-executive director and investing £200k of his own money for a 3.1% stake in January 2006.
Recommendation: BUY at 12.25p (market cap £7m)
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