Tekcapital shares: a brief overview for Q2 2024

Tekcapital stock surged after portfolio company MicroSalt’s IPO, and new catalysts are just around the corner.

Tekcapital (LON: TEK) shares soared from just under 7p at the start of 2024 to 17p piece in mid-February, buoyed by the successful IPO launch of promising portfolio company MicroSalt. However, the company’s stock has since fallen to 8.1p, in line with MicroSalt’s market price discovery, today’s Belluscura news, and perhaps also driven by a placing that should see the company financed for some time to come.

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For context, MicroSalt ran to as a high as 114p on 16 February having launched at 43p — and the stock is still changing hands at 71.5p after a period of plateau.

It’s probably fair to say that this price action is indicative of two things: a market starved of IPOs, and the difficulty in fairly assessing the value of MicroSalt’s potential given its relatively early stage status, unique product, and top end partners.

The TEK placing

TEK raised £2 million on 29 February at 10p per share — another example of a quality company given the London financial treatment — with £300,000 to be used to complete the build-out and commercial deployment of Guident’s new Remote Monitor and Control Centre, and £500,000 for a new investment into a Generative AI portfolio company opportunity.

The company also repaid a £600,000 (plus interest) loan entered into by subsidiary Tekcapital Europe with portfolio company Innovative Eyewear. The rest of the funds raised, after expenses, are to be used for working capital requirements.

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Executive Chairman Dr Clifford Gross notes that the funding will ‘enable us to strengthen our balance sheet, complete the build-out of Guident’s new RMCC to facilitate servicing its growing client base, and form a fifth portfolio company in the Generative AI space.’

There are plenty of factors to unpack here. To start with, MicroSalt should now be self-funding, having raised £3.14 million at the IPO — and TEK continues to hold more than three quarters of its shares.

The placing may have felt a little unfair to long-term holders at the time, but Tekcapital is operating in a difficult market. Taking advantage of the heightened interest around the company to pay off a debt that would have been a long-term anchor, and getting the cash in place to advance its strategy while also getting the money to keep all typical expenses at bay is not a bad compromise.

Tekcapital’s share price is now below that 10p placing price, and in hindsight this leaves TEK better positioned for growth through 2024.

Upcoming catalysts for TEK shares?

While TEK also has interests in Belluscura and Innovative Eyewear — which both hold significant promise over the longer term — there are three potential near-term catalysts for investors to keep an eye on:

  • The next MicroSalt contract
  • TEK’s AI investment
  • Guident’s RMCC update

MicroSalt already boasts contracts with some of the biggest names in the health business, and an update on the success of these current partnerships, or perhaps a new contract with another partner could see a positive corresponding effect on TEK.

The upcoming generative AI investment will also be interesting — presumably this will be a university spin-out as is the corporate model, but having raised at 10p, shareholders will want to see an investment in a company where the juice will be worth the squeeze.

But perhaps the key catalyst to watch is 100% owned Guident, a portfolio company which aims to offer competitive advantages for Autonomous and Electric Vehicles fleet operators via a Remote Monitor and Control Centre (RMCC), utilising artificial intelligence and secure, ultra-low-latency network connectivity.

The RMCC centre, which is being finalised via the £300,000 raised, will monitor autonomous vehicles, and also provide support services such as calling out the emergency services, taking control of the vehicle, moving it out of harm’s way, and even providing real-time comms with passengers.

There are two key economic moats surrounding the portfolio company, which is crucial given the extreme competition in the space.

The first is that it has one of the lowest teleoperation video latencies in the industry, or in other words, video from an AV gets to the RMCC faster than rivals. Guident remains the only teleoperations company with patented systems and methods for remote monitoring and controlling autonomous vehicles, robots, and drones.

The second is its regenerative shock absorber tech — Guident has established a wholly owned subsidiary named Revive Energy Solutions — in response to significant market traction for the tech, including a collaboration with a leading tyre manufacturer and successful proof-of-concept testing results.

The company plans to produce electromagnetic regenerative shock absorbers with advanced energy densities which are capable of capturing and utilising a vehicle’s vertical movements that are part of everyday driving on public roads, and which are currently dissipated as wasted heat energy.

Importantly, Guident has already informed investors that ‘progress is underway with multiple car manufacturers, to assess the manufacturability, cost, and the best approach to rapidly bring the technology to the world market.’

Guident has three key strategic partnerships:

Space Florida and Novelsat — the company was awarded a large grant from Space Florida (independent established by the State of Florida to advance aerospace tech businesses) in 2023. The purpose of the grant was to implement satellite communications as an additional connectivity option for AVs, and the project is now on track to demonstrate teleoperation over satellite communication links in Q2 2024 — or in other words, any time from now to the end of June. This a joint effort with Israel-based Novelsat, a global provider of innovative satellite communication services.

Adastec — Adastec’s flowride.ai system enables SAE Level-4 operation for buses manufactured by Karsan and Vicinity Motor Corp. Guident’s teleoperation solution, integrated with flowride.ai, represents what the two companies see as a ‘breakthrough in autonomous transportation,’ offering full-scope autonomous vehicle monitoring and control coupled with fleet management. Beginning this year, Guident’s RMCC solution will be integrated into Adastec’s automated buses being deployed in the US.

Auve Tech — Guident recently announced a partnership with Estonia-based Auve to integrate its RMCC teleoperation system with Auve’s MiCa autonomous shuttles (already deployed in Europe and Asia), and this partnership has now moved to the implementation phase. This integrated tech will be in place in the first Auve shuttle which has been shipped into the US under Guident’s recently received National Highway Traffic Safety Administration testing approval.

Over the next two years, Guident’s research and development program will develop a roadmap to improve remote control operator effectiveness and implement augmented reality features for enhanced situational awareness and passenger communication. The business also recently adopted a software architecture framework that should help to ensure scalable development, smooth feature releases, customer upgrades, and efficient software license management to support future growth.

The portfolio company is hosting the upcoming National US Autonomous Vehicle Day on 31 May. For perspective — as announced in a recent UKIM interview — Guident is currently organising a US private equity funding round. It’s engaged a US investment bank to facilitate the capital raising which is expected to provide an uplift to Guident’s current valuation.

The round is expected to be completed by the end of Q2 2024, and will have the benefit both of funding Guident but also lifting a financial constraint from Tekcapital’s shoulders.

Tekcapital going forward

Tekcapital is now capitalised, will see strong growth in Guident, and is set to enjoy success with MicroSalt through 2024. Then there’s Belluscura and Innovative Eyewear in the portfolio — and a yet to be named investment into an AI start-up.

In a market where AI dominates the discourse, Guident and this new AI investment could bring TEK back to a premium valuation, and investors know that multiple positive RNSs are going to drop this quarter. 

Of course, the company continues to operate in a difficult market where a combination of the US-based AI bubble and higher interest rates have created record discounts to NAVs. But when rates start falling and the NASDAQ titans fall back to reality, the Tekcapital re-rate could happen fast.

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