Tekcapital shares were firmly bid on Friday after a busy week for its portfolio companies, including significant updates for low-sodium technology company MicroSalt and Innovative Eyewear, the developer and manufacturer of smart eyewear.
Tekcapital broke above 10p in early trade on Friday, trading at the highest levels since June. Yet, the gains this week in TEK shares still leave the technology investment company heavily undervalued compared to the net asset value of its portfolio.
According to our calculations, the total net asset value of the portfolio companies is a little over £51m. This doesn’t include any cash or convertible loan notes it has on its books.
The portfolio value alone would translate to a share price of 26p compared to a current Tekcapital share price of just 10.5p at the time of writing. Our portfolio valuation total was calculated using live share prices and is subject to change as underlying prices fluctuate.
One of the shares fluctuating on Friday was MicroSalt after the company released a bumper update on its orders from some of the world’s largest snack food companies this week.
MicroSalt shares had added another 26% to trade at 95p at the time of writing on Friday. In terms of underlying value for Tekcapital, MicroSalt is the company’s largest holding, with the value of their holding exceeding the entire market capitalisation of Tekcapital.
There is a clear disconnect between portfolio company valuations and Tekcapital shares.
This disconnect results from the macroeconomic environment being largely unfavourable for early-stage companies as higher interest rates increase discount rates and lower the perceptions of value in certain assets.
However, this discount is largely unwarranted for Tekcapital. Most of its portfolio consists of listed equities, which have clear indications of value attributed to them by public markets. The discount between Tekcapital shares and the NAV is more appropriate for a portfolio of privately held stocks with big question marks about their valuation. The market may remove this discount as sentiment improves.
Tekcapital also has the additional benefits of potential upside in portfolio companies.
MicroSalt could well have further run if the company revealed further commercial deals that cement its place as one of the major players in reducing sodium content in food to help fight against cardiovascular disease.
Recently listed GenIP is arguably undervalued after coming to market during a period of uncertainty around AIM shares. The Generative AI analytics firm has already announced orders that infer an annual revenue run rate that would dictate a valuation two or three times higher than the current share price should one apply peer group average price-to-sales multiples to the company.
Then we have Guident, the only current privately held company that may be Tekcapital’s jewel in the crown. The autonomous vehicle safety company operates in the popular urban mobility sector and is busy building out commercial relationships, one would assume, in preparation for a future listing.
Tekcapital also retains holdings in Innovative Eyewear and Belluscura, which are both scaling their models and increasing revenue.
As an AIM-listed company with a market cap under £50m, Tekcapital should be considered a higher-risk share. However, adventurous investors with a reasonable appetite for risk may benefit from the closing of the discount between the NAV and share price and any further appreciation of portfolio company values.