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  • Writer's pictureMark Watson-Mitchell

Tekcapital – ahead of its interims later this month its shares are far too steep a discount to value

Almost a year ago the shares of Tekcapital (LON:TEK) were trading at 34p, they have since then fallen by over 70% to the current 9.75p.

It declares that its investment objective is to achieve long-term growth of net assets and returns on invested capital through the commercialisation of university discoveries that can make a positive impact on people's lives.

Considering that every move that the company’s management has made in the last year has done nothing but improve its overall profile – the market appears to be truly undervaluing this investor in intellectual property.

Perhaps the Interim Results due to be announced later this month will prove to be the precursor of investors taking a very much more positive view of the company’s business, its structure and its corporate prospects going forward.

The Business

Identifying and capitalising upon a selection of projects that have been created by some of the world’s leading universities is just what the company is all about.

It has a global network of contacts, through which it gleans thousands of patents and schemes originating from the billions of pounds spent each year upon technology research.

Spanning some 160 countries around the world, its network includes some 4,500 research bodies and universities.

Founder Dr Clifford Gross and his team sif through patent applications, some 100,000 of which are filed each year.

Tekcapital researches and identifies the potential viability of commercialising such prospects and selects several for further analysis.

It has a panel of over 60 industry experts from various fields, using their knowledge to delve deeper into such prospective investments, then evaluate development candidates.

Apart from offering this ability as a service to hundreds of its university, research institution and business subscribers, it also helps to provide them with technology transfer services as they look to commercialise new disruptive technologies.

More importantly though, the company also selects several for its own investment.

The group creates its value by investing in new, university-developed discoveries that it believes can enhance people’s lives.

It considers that when you couple commercialisation-ready, compelling university intellectual property with visionary individuals, then vibrant companies will emerge that could produce strong returns on invested capital.

Those eventual investments are then progressed towards their own IPO’s, giving them the opportunity to raise further development capital.

In due course, the company expects each investment to outperform its sector, providing it with the opportunity to exit part or all of its investment, which in turn gives the group the ability to return a portion of the proceeds as a ‘special dividend’ to its shareholders.

It has an ability to transform university discoveries into valuable, much-needed products.

The value of its investment portfolio is very much more than double the current market capitalisation, while events due soon could see that discount widen even more.

The Portfolio

Currently the £18m capitalised group has a portfolio of patent interests.

Its business model is to take the pick of those researched situations, invest in them, team it up with a ‘star-power’ management with both experience and vision, then progress it forward to an eventual fund-raising, further development and success, before part or total exit of its equity position.

Its main portfolio constituents are:

Lucyd 100% owned

Lucyd is seeking to Upgrade Your Eyewear® by developing and selling designer tech-enhanced eyewear at affordable prices.

It has recently introduced the world's first smart eyewear with ChatGPT.

Lucyd's 58% owned US operating subsidiary, Innovative Eyewear Inc (NASDAQ: LUCY), was the first company to deliver prescription glasses with Bluetooth® technology in 2019.

Its eyeglass frames help the wearer stay connected safely and conveniently, by enabling many common smartphone tasks to be performed handsfree with Bluetooth® and voice assistants.

Guident 100% owned

Guident Limited is developing remote monitoring and control software to improve the safety of autonomous vehicles and land-based delivery devices.

Its software will incorporate artificial intelligence and advanced network technologies to minimise signal latency and improve the safety of autonomous vehicles.

Developing intellectual property and software solutions to increase the safety and efficiency of electric and autonomous vehicles.

MicroSalt Ltd 78% owned

This company manufactures MicroSalt®, which is a new, patented, all natural, non-GMO, Kosher, low-sodium salt, that tastes great and has approximately half of the sodium of regular table salt.

Belluscura Plc (LON:BELL) 12% owned

Belluscura is a respiratory medical device company that has developed and launched an improved portable oxygen concentrator to provide on-the-go supplemental O2.

The company believes its product is the first FDA cleared, modular POC with a user-replaceable filter cartridge.

Belluscura aims to make POC's more affordable to those who need them.

Latest Results – 26th May

Understandably the group’s net assets eased back in the year to end December 2022, due to the difficult equity markets in the period to $57.8m ($68.1m), leaving its net asset value per share at $0.38 ($0.48).

The company’s Portfolio valuation at the year-end was $54.9m ($62.5m).

The impact of a net unrealised fair value reduction of $11.0m, created a total loss after tax of $12.7m ($26.4m profit).

Commenting upon the current year Outlook Dr Clifford Gross stated that

“We are enthusiastic about the development of Tekcapital's portfolio companies, their performance to-date and their prospects to significantly expand in 2023.

The Board is confident that continued investment in our non-quoted portfolio companies remains the right approach for potential long-term value creation.

Additionally, we are currently exploring additional funding for our non-quoted, portfolio companies, to accelerate growth for these companies.”

The Equity

There are some 178.2m shares in issue.

Larger holders include Clifford Gross, Chmn, (4.86%), James Knight (4.28%), Nigel Wray (4.06%), Elie Dangoor (3.30%) and Edale Capital (2.18%).

Analyst Opinion – the shares are a Buy

Brokers SP Angel rate the group’s shares as a Buy.

Their analysts note that the company’s net asset value, as at TEK financials on 31st May, were £46.8m.

However, that was before £4.25m of new cash raised in February and April of this year takes it up to £51.07m.

The brokers stated that there has been a great deal of commercial activity at each of the portfolio companies since year-end, creating additional upside in the potential return to investors over the reported NAV.

Conclusion – far too steep a discount to its value

This innovative investment company’s shares should not be trading at such a significant discount to its net asset value.

Upon SP Angel’s estimates that gives an NAV of 28.66p per share, giving a 66% discount to value, with the shares currently trading at only 9.75p.

Even at a 50% discount, which is also a steep discount, the shares would then be trading at nearly 14.5p each, which offers patient investors a very attractive upside.

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