Shares in RingProp slipped by 1% to 152.5p today after the safe propeller maker revealed that a change in the material used to build the propeller would delay the product launch. Interesting potential but still many hurdles to clear, says Douglas Smith.

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The trouble with early stage businesses is that what looked great on the drawing board can soon be found to be impractical in practice. RingProp, which has spent the last 20 years developing a propeller with enclosed blades to improve safety, has suffered just such a setback. But thankfully, it's not quite back to square one.

The design itself remains unchanged - RingProp's propeller still has a unique integral ring around the sharp, biting teeth of the blades to prevent traumatic injury to humans and wildlife - but the group now proposes to make the propeller body out of the more traditional aluminium rather than injection-moulded composite materials.

The advantages of using a composite material were outlined in Ringprop's initial prospectus and they still stand - quick production, cheap material, high margins, and comparable strength properties - but "further research", said chairman Johnny Townsend, has seen the group decide that it could better establish itself using traditional materials.

Put simply the yachtsmen and boat owners who will buy these props just don't trust composite blades. Horror stories from the 1970s have given the material a bad reputation and with something as vital as a propeller - something that is perhaps a boat's only form of power many miles out to sea - a good reputation is everything.

Introducing a "revolutionary" new blade - the first radical change since the invention of the propeller in 1839 by the Swede John Ericsson, claims RingProp - as well as a new material has proved to be a revolution too far. RingProp was always going to struggle to re-educate the market in the improved reliability and performance of composite propellers.

Aluminium propellers currently have 82% of the world's market, against composites, which hold just 3-4% of the market, and RingProp is right to think that it would establish itself better using traditional materials. The group has since found an aluminium propeller manufacturer which can compare favourably on price.

It expects to price the propellers at the higher end of the aluminium propeller blade market, and make some £70 pounds or so per propeller sold. The change means, however, that maiden revenues - previously expected about now - will not occur until 2004. Townsend believes that the target of 275,000 units sold by 2005 is still achievable.

Today's interim results show a net loss before tax of £359,000 over the six months to March 2003, with no sales over the period, and a cash balance of £2.4m.

Valuation
Forecasts at this stage are non existent. What investors need is an indication of the likely uptake by the market. Increasing legislation - and the threat of more law suits following a recent US case versus a conventional propeller manufacturer - will play a part in the introduction of safer propellers. But for RingProp to become a real success, the market needs to embrace the design willingly.

Sales haven't started yet and so RingProp and its analysts are no wiser to the financial merits of their enclosed propeller than the more speculative investors that are aboard already. There is a market for the group's products; even if only prompted by legislation, but how quickly the potential is realised is anyone's guess. One to watch.

Share prices can go down as well as up. The past is not necessarily a guide to future performance and the marketability of some shares can make them difficult to sell.