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 sift 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, and then evaluate development candidates.

Apart from offering this ability as a service to hundreds of its universities, research institutions 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 IPOs, 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 Limited– www.lucyd.co 70% 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 www.guident.co 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 www.microsaltinc.com 97% 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)  www.belluscura.com 12% owned

Belluscura is a respiratory medical device company that has developed and launched an improved portable oxygen concentrator (POC) 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 POCs more affordable to those who need them.

Latest Results – 26^th 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 31^st 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.

The FTSE 100 crept higher on Monday as investors shook off more downbeat Chinese economic data and looked forward to US CPI inflation data due to be released on Wednesday.

The FTSE 100 was 0.45% higher at 7,290 at the time of writing.

Chinese producer prices sank 5.4% in June, the worst decline since 2015, and piled further pressure on Chinese authorities to take additional steps to stimulate their economy.

“The continued loss of power in the Chinese economy is concerning investors, with consumer prices flatlining. The downbeat data comes ahead of the key inflation snapshot in the United States on Wednesday, which could determine how long the monetary squeeze will continue,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“While inflation shows signs of stubbornness in other economies, disinflationary forces are at work in China, which risk tipping the world’s second largest economy into a deflation scenario.”

The frequency of poor Chinese economic data releases has increased recently, and many investors have positioned for imminent easing. There is an argument that additional Chinese stimulus is already priced into stocks, and the immediate market reaction to new measures will be muted.

The FTSE 100’s miners were little changed on Monday.

US CPI

Inflation remains the overarching theme in markets, and investors will closely watch Wednesday’s US CPI print for any hint of central banks’ next moves.

“Last week’s big pullback in global equities has hurt investor sentiment and triggered a ‘wait and see’ approach among many people who have become nervous about deploying more money in the markets until there is more clarity on the next central bank interest rate decisions,” said Russ Mould, investment director at AJ Bell.

“It seems likely the Federal Reserve, ECB and Bank of England will continue to raise rates in the fight against inflation. Labour markets are holding up better than expected and plenty of businesses continue to grow profits. However, the more rates go up, the bigger the risk of a hard landing – reaching the point where a lot more consumers and businesses cannot cope with the higher cost of borrowing and we suddenly see a slump in the economy.”

Legal services provider DWF (LON: DWF) is the best performing company on the Main Market following a bid approach by Inflexion Private Equity Partners. The offer is 97p/share and the market price jumped by one-third to 87.2p. Shareholders would also receive a 3p/share special dividend if the bid goes ahead.

Shareholders would also be given the option to receive a partial loan note alternative with 65% in loan notes and/or preference shares and 35% in cash. There is also an option to reinvest 40% of the cash proceeds in loan notes or preference shares.  

The business is split into four divisions: commercial services, insurance, international and connected services.

History

Back in March 2019, DWF was the first lawyer to float on the Main Market – the rest are on AIM. It raised £75m at 122p/ share, which valued DWF at £366m. After a strong start the share price slumped in 2020 – probably due to the end of the one-year lock-in following flotation – before recovering. However, there has been a downward trend since the beginning of 2022.

Dividends paid since flotation total 15.1p/share. Last year, 4.75p/share was paid.

Zeus trimmed its 2022-23 pre-tax profit forecast by 4% to £44.1m but maintained the following year at £54.2m. Taking the total potential consideration as 100p/share, the prospective 2022-23 multiple is less than ten, falling to nine. That compares with a multiple of 20 when DWF floated.

That rating is higher than for some AIM rivals, such as Knights Group Holdings (LON: KGH), and similar to Gateley (LON: GTLY).  

BT Group CEO Philip Jansen will step down from his role within the next 12 months. BT said they have already begun the succession process.

Jansen has overseen the mammoth task of connecting UK homes to Fibre but growth at a group level has stalled under his tenure.

“Philip Jansen had a massive list of problems to fix the second he walked in the door as the new boss of BT in February 2019,” said Russ Mould, investment director at AJ Bell.

“His decisions were logical: cut more of the fat from the business, sharpen the focus on providing faster broadband to households across the country and find alternatives for non-core operations such as putting the sports broadcasting arm into a joint venture.

“Sadly, Jansen is not going to be remembered for being the person who breathed life back into BT. It’s still the slow, creaking juggernaut today that it was before he joined. Earnings are forecast to go into reverse this financial year and show minimal progress over the following two years.

“Shareholders have suffered big time: more than £10 billion has been wiped off the value of the business under Jansen’s leadership, and BT is now nearly one-quarter owned by a French billionaire who has taken advantage of the weak share price to build a strategic stake.”

Helium One shares surged in early trade on Monday after releasing an update on drilling activities at their Tanzanian Helium assets.

Last week, Helium One said they were becoming frustrated with the lack of action taken by SOFORI after signing a letter of intent to provide a rig to enable drilling to start in Q3 2023. At the time, Helium One said they were exploring other avenues to ensure spudding of the drill holes would commence on schedule.

On Monday, Helium One announced they had acquired their own rig and now had full control over the drilling programme and were no longer reliant on third parties.

“I am pleased to note the above significant progress made with our efforts to ensure we drill our exciting Tai Prospect in Rukwa with a recently upgraded P50 Helium resource of 2.8 Bcf,” said Ian Stalker, Chairman, Helium One.

“This is indeed a milestone event for the Company and opens up a range of ancillary options for the Company as well as, most importantly, securing the control of our own drilling programme and any future appraisal and further exploration activities.”

Helium One has acquired an Epiroc Predator 220 drilling rig capable of drilling to depths in excess of 2,000 metres and signed a separate contract with Baker Hughes for wireline, cementing and fluids services.

Helium One shares were 49% higher at 7.6p at the time of writing.