- NAV falls 6.5% to £45.5m (81.8p)
- Cash and registered stake in Exscentia currently worth £6.2m (11.1p)
- Progress of multiple investee companies
Shares based in Edinburgh Frontier IP (FIPP:41.5p), a technology investment company that provides commercialization services to university departments in return for “free shares”, fell 10% after annual results. The decline was caused by an unexpected 6.5 per cent (£3.1m) reversal in net asset value (NAV) after the group booked an unrealized loss of £2.2m on its 17 per cent stake in The Vaccine Group ( TVG).
TVG is developing a range of vaccines based on a novel herpesvirus-based platform to prevent the spread of economically damaging livestock diseases. The company now has eight vaccine candidates that are approaching proof of principle. His most advanced projects are for pigs. During the year, TVG successfully developed a vaccine candidate for streptococcus suis, a bacterial disease carried by pigs that causes loss of productivity as well as meningitis and other symptoms in humans. The project is funded by the UK and Chinese governments.
In addition to streptococcus suis, TVG has developed a transmissible vaccine candidate against a virus called Lassa fever for use in rats that spread the disease. Funded by a US government agency, a small-scale trial showed that the candidate could be transmitted between rats, significantly improving their immunity to Lassa fever and reducing its spread between them. The company is negotiating with potential partners.
Progress in the monetization of the technology will be needed to boost TVG’s valuation, but it is not out of the question. This is something that Plymouth spin-out, green technology company Pulsiv Solar, the group’s biggest holding, is already doing. Its on-chip technology not only improves the energy efficiency of power supplies, battery chargers, LED lighting and photovoltaic solar cells, but is proving popular with the world’s leading electronic component suppliers looking to take advantage of the commercial opportunity. The £1.5m fundraising gave Pulsiv a pre-money valuation of £50m, meaning Frontier’s 18.2 per cent stake has a real valuation of £9.4m, representing 28 per cent of its equity portfolio of £33m at 30 June 2023 financial year end.
Portfolio companies with promises
The operational progress of harvest robotics developer Fieldwork Robotics, spun off from Plymouth University, is also attracting investor interest. At the end of Post Frontier’s financial year, the company secured a £1.5m investment from Elbow Beach Capital, a decarbonisation, sustainability and social impact investor, and attracted £1.5m investment from 575 investors in a Seedrs funding round. The preliminary valuation of £7.2m put a value of £1.6m on Frontier’s stake. Having developed the world’s first raspberry-picking robots to improve farm efficiency, reduce food waste and help solve the problem of worker shortages, the funds raised are being used to grow the Fieldworks team, outsource manufacturing of outsourcing robots and getting more farmers into the harvest – by – offering a service.
There is a similar positive story at the CamGraPhIC department of the University of Cambridge. The company’s graphene-based photonics operate at higher speeds and lower temperatures than equivalent technologies – and therefore use less energy. Data centers, which consume about 1 percent of global energy production, are one potential market for its optical transceivers. Sir Michael Rake, former Chairman of the BT Group (BT.A), has invested in CamGraPhIC’s latest funding round, which raised £1.26 million to complete the production and testing of demonstration devices with multinational companies. The technology is starting to gain popularity among government organizations as well. In the financial year, Frontier reported a £1.4m gain on its 20.8 per cent stake in CamGraPhIC, in line with the fundraising estimate, and a £0.7m gain on its 2.6m loans pound.
Big discount on total parts estimates
After the end of the period, Frontier IP subscribed to a further £1.3m of loans from CamGraPhIC (of which £0.8m was classified as advances in the 2023 accounts) to accelerate its development. The investment reduces the group’s pro forma cash to £4.1m. In addition, Frontier intends to dispose of more shares on the Nasdaq listing Science (US: EXAI), a clinical-stage pharmaceutical technology company pioneering the use of artificial intelligence (AI) to design new drugs. Frontier currently owns 0.49 million Exscientia shares, worth $2.5 million (£2.1 million) at the current market price.
The effectively liquid stake in Exscientia and pro forma cash is worth £6.2m (11.1p) or a quarter of the group’s market capitalization of £23mn (41.5p). That means Frontier’s £33m (59p) equity portfolio, £5.9m (10.5p) debt investments and £1m (1.8p) trade receivables are in the share price at 58 percent less than their combined balance sheet values. This is extremely difficult given the progress made by CamGraPhIC and Pulsiv Solar. In fact, I’d be surprised if their combined valuation doesn’t exceed Frontier’s current market cap in the next 18-24 months.
So having made a case to buy Frontier shares, at 38p, ahead of results (‘Buy Tech at 57 Percent Off,” 13 Sep 2023), I see an opportunity for positive news flow from portfolio companies to narrow the 50 percent discount from the share price to NAV in the coming months. Buys.
■ Simon Thompson’s latest book Successful Stock Picking Strategies and his previous book Picking stocks for profit can be purchased online at www.ypdbooks.com at £16.95 each plus P&P of £4.95 or £25 plus P&P of £5.75 for both books.