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TMT Investments banks massive gains on asset disposals

The venture capital company that holds a significant number of Silicon Valley investments has been making hefty gains, a trend that is set to continue
July 11, 2019

Aim-traded shares in TMT Investments (TMT:355¢), a venture capital company that invests in high-growth, internet-based companies across a variety of sectors – and with a significant number of Silicon Valley investments in its portfolio – has been one of the stars of my 2019 Bargain Share Portfolio, surging by 40 per cent on an offer-to-bid basis after I suggested buying around the 250¢ mark. A series of announcements made in the past few weeks explains why.

Annual results for the 2018 financial year revealed that TMT’s net asset value (NAV) increased by 33 per cent to US$90.3m (309¢ per share), buoyed by the disposal of its fifth largest investment at the start of 2019, a stake in Wrike (www.wrike.com), the collaborative work management platform that provides workplace teams with a single digital platform to maximise their operational performance. The exit realised US$22.6m (£18m) including US$300,000 of deferred consideration, equating to a thumping US$14.2m premium to the last reported carry value of US$8.4m in TMT’s June 2018 interim accounts and 23 times higher than the original investment TMT made in 2012. With current net cash reserves equating to US$22.2m, the board are rewarding shareholders with a special dividend of 20¢ a share (ex-dividend: 18 July) at a cost of US$5.8m.

There have been significant valuation gains in other portfolio companies, too. Bolt, a leading international ride-hailing company previously known as Taxify (bolt.eu), completed a US$175m funding round in May 2018 led by automotive giant Daimler AG and European venture capital fund Korelya Capital that raised the company’s valuation to US$1bn. This increased the value of TMT’s stake in Bolt from US$3.7m to US$17m, further highlighting a conservative approach to the carrying values of its investments. Indeed, in the past few weeks Bolt has completed a new funding round which raises the value of TMT’s holding by almost 30 per cent to US$22m.

It wasn’t the only new funding round that has taken place post TMT’s 2018 financial year-end. Portfolio company, PandaDoc, a document automation Software-as-a-Service (Saas) provider (pandadoc.com) has just completed a new equity funding round which raises the value of TMT’s equity stake by 79 per cent to US$2.2m. Also, earlier this year, TMT sold its entire investment in mobile technology investor relations app platform, The IRApp (theirapp.com), at an 82 per cent premium to end 2017 book value of US$300,000.

Of course, there have been negative portfolio movements, too, as is always the case with private equity and venture capital investments. However, the fact that TMT has more than trebled its NAV per share from 100¢ to my live estimate of 329.4¢ since IPO in December 2010 highlights that portfolio gains have been outpacing write-downs by quite some margin. It’s also reassuring to see that TMT’s other major portfolio investments have been attracting materially higher valuations on partial exits, too.

2019 Bargain Shares portfolio performance
Company nameTIDMMarket value Opening offer price on 01.02.19Latest bid price 10.07.19 DividendsPercentage change
Futura MedicalFUM£74m14.85p36.0p0p142.4%
TMT InvestmentsTMT$99m250¢350¢0p40.0%
Litigation Capital ManagementLIT£109m77.5p100p0.28p29.0%
InlandINL£138m57.75p66.5p0.85p15.2%
Ramsdens HoldingsRFX£57m165p186p0p12.7%
Mercia TechnologiesMERC£100m29.57p33p0p11.6%
Augmentum FintechAUGM£104m102.4p111p0p8.4%
Bloomsbury PublishingBMY£179m229p240p0p4.8%
Driver GroupDRV£31m74p57.3p0.5p-21.9%
Jersey Oil & GasJOG£15m205p71p0p-65.4%
Average      17.7%
FTSE All-Share Total Return index6,8527,523 9.8%
FTSE AIM All-Share Total Return index1,0231,027 0.4%
Source: London Stock Exchange

For instance, TMT sold a small holding in Pipedrive, a leading sales customer relationship management (CRM) software provider (pipedrive.com), for $2m last year at a 34 per cent premium to carrying value. TMT’s remaining holding in Pipedrive is valued at $10.3m in the company’s latest accounts. Other exciting investments include a $10.5m holding in Backblaze, an online data back-up and cloud storage provider (backblaze.com), and a US$10.8m holding in Depositphotos, a royalty-free microstock photography agency based in Fort Lauderdale, Florida (depositphotos.com).

The holdings in Bolt, Pipedrive, Backblaze and Depositphotos account for 78 per cent ($53.7m) of TMT’s equity investment portfolio of $68.3m after factoring in the post year-end uplifts to the stakes in Bolt and PandaDoc. The other US$14.6m of the equity portfolio is spread across 14 mainly smaller sized technology investments.

The bottom line is that with ongoing portfolio realisations consistently pitched significantly above the conservative carrying values of TMT's investee companies, and the company cashed up to recycle the proceeds of the Wrike disposal into new investments, then the 8 per cent share price premium to spot NAV of 329¢ is more than justified. Buy.

■ Stock clearance offer ends 15 July. Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. 

Subject to stock availability, each book can be purchased at the promotional price of £9.95 per book plus £2.95 postage and packaging, or both books can be purchased for £19.90 plus postage and packaging of only £3.75. The books are being sold through no other source and are normally priced at £16.95 per book plus postage and packaging. A detailed outline of the content of each book can be viewed on YPDBooks website.