Tekcapital shares are primed for a rerating, according to a research note released on Wednesday by SP Angel analysts who see 180% appreciation in Tekcapital as interest rates fall and investment company discounts return to normal.
“The current discount to asset value of 75%, or 77% including loan notes, appears unsustainable in light of an interest rate cycle which is trending down and the underlying companies each achieving major operational milestones,” SP Angel analysts wrote in a note.
SP Angel explained higher interest rates had led to large investment company discounts to NAV through higher weighted average cost of capital (WACC) and that as interest rates start to fall, WACCs should fall and provide support for the valuations of investment companies such as Tekcapital.
In addition to the external macro influences on the Tekcapital share price, SP Angel highlighted welcomed the boost to NAV by the GenIP IPO and the creation of value in the business where there had previously been no value attributed to Tekcapital.
Investors may be interested to see SP Angel account for broad discounts in the investment company space by adjusting their NAV assessment of 32.6p per share by 35% when deriving their fair value target.
Even with a 35% discount to NAV factored into their fair value, SP Angel’ research concluded Tekcapital’s fair value target should be 21p, offering 180% upside from the current price.
“If we target fair value for Tekcapital in line with an average discount to fair value currently seen in the market for investment companies of c35%, we arrive at a target price of 21p. This lies 180% above the current share price. Buy,” SP Angel explained.