Radio frequency (RF) technology group Stanelco has come in for a bit of a bashing since BioProgress successfully wrestled an important patent from it, but fund manager Andy Brough has splashed out on shares all the same.
Schroder's A-rated star smaller companies manager Brough recently picked up 29 million Stanelco (SEO) shares at 4p despite the group's recent problems.
The stake is equivalent to 3.5% of the £33.3 million company and is held across several funds run by Brough.
Although Stanelco's recent loss of a patent for its process of sealing water soluble capsules using RF technology is a big blow, there is another project at an advanced stage of development and Brough seems to think it is worth backing.
Brough told Citywire: 'We looked at it as a risk reward thing.
It will either be massive or it won't.'
Stanelco has found a way of using RF technology to seal food packages, which at present are heat-sealed.
Patents relating to this part of the business are separate to the family of patents BioProgress has claimed as its own.
Stanelco's food packaging technology allows packing companies to use less expensive and more easily recyclable raw materials.
In addition Stanelco says RF sealing is more reliable than traditional methods and significantly reduces the chances of leaks in food packaging that is meant to be airtight.
Leaks can mean spillages and makes products, such as meat, go off quicker.
Packaging firms usually end up footing the bill for such problems and it is a major headache for the industry.
A number of big packaging firms, such as Grampian, are commercially testing the technology at the moment and Stanelco hopes large orders are not far off.
The plan is to charge firms that have their packing machines converted to use Stanelco's technology about 35% of the cost savings on raw materials.
Management reckons this will be equivalent to approximately £35,000 per machine per year.
The savings on leakage reduction would be thrown in for free.
These revenues would be recurring and with about 25,000 tray-lidding machines (think of the packaging for a steak bought from the supermarket) and 20,000 termoformers (the flat packaging for smoke salmon from the supermarket) operating worldwide the market is big if the technology is as good as management boast.
The allure of the company and Brough's reason for buying are not hard to see.
However, recent disappointments make the story behind the RF packaging technology harder to swallow.
Until recently Stanelco had a joint venture with US healthcare giant Cardinal Health which had the potential to be making it £18 million a year in six years time.
That is a big deal for a company that in the year to the end of October 2003 reported turnover of just £1.9 million.
However, last month the High Court ruled that the patent behind this technology rightfully belonged to BioProgress, a company that Stanelco had worked with in 1998.
Stanelco will appeal against the ruling.
The lost patent is not related to the packaging venture but the blow was significant and will be disconcerting for new investors.
That aside, Stanelco could still be very exciting and this is highlighted by Brough's decision to take a risky punt on the shares.
Given the measly revenues and forecast loss of £1.8 million for the year just gone, the current price of 4p already accounts for some of the potential.
However if the packaging venture comes off Brough could be laughing.
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