Bargain shares: Tapping into high-growth technology stocks

TMT Investments (TMT:1,130¢), a venture capital company that invests in high-growth, internet-based companies, has produced some eye-catching valuation uplifts in its latest portfolio update.

TMT’s fifth largest portfolio holding, proposal automation and contract management software provider, PandaDoc, has not only been attracting increasing interest from clients looking to remotely manage their selling processes “from propose to close”, but from investors, too. TMT’s 1.55 per cent stake in the company was last revalued up by 63 per cent from US$2.2m to US$3.6m following Pandadoc’s equity fundraising in August 2020, a hefty return on the company’s US$0.4m original investment made in July 2014. It is now a multi-bagger as Pandadoc’s latest equity funding round places a value of US$14m on the stake, representing 7.4 per cent of TMT’s US$190m portfolio valuation. There should be more upside to come, too.

In addition, 3S Money Club, a UK-based bank challenger providing corporate clients with multi-currency bank accounts, completed a new equity funding round which has resulted in an uplift of US$1.9m in the fair value of TMT's investment. TMT has invested a total of US$3.26m in the company since April 2020, once again highlighting the impressive ability of its investment team to successfully identify early stage technology companies with potential to deliver strong investment returns.

For good measure, TMT exited its 3.04 per cent stake in Klear, an influencer marketing platform, following that company’s US$17.8m acquisition by Meltwater, a leading global SaaS provider of media intelligence and social analytics. TMT's will reap cash proceeds of US$0.5m from the disposal, representing a 232 per cent uplift on the carrying value of the stake in the company’s 2020 accounts.

TMT’s astute investment team have also been actively recycling the US$41m cash proceeds from the December 2020 exit from customer relationship management (CRM) software tool developer Pipedrive. New investments made since the start of 2021 include US$2m in CloudBusiness Inc., an accounting solution for e-commerce businesses; US$0.5m in Cyberwrite Inc., a cyber risk assessment platform that calculates the financial and benchmarked cyber risk of businesses worldwide; €500,000 in Outvio, a fulfilment and delivery platform for the e-commerce industry; and US$2m in Muncher Inc., a dark kitchen and virtual food brand operator in Latin America. Its business model addresses carbon footprint and sustainability matters by providing food entrepreneurs with kitchen facilities located in reconverted shipping containers and in closer proximity to their clients.

Other notable new investments made since I covered the annual results (‘Five investment company bargains’, 8 April 2021) include US$0.3m in Agendapro, Inc., a SaaS-based scheduling, payment and marketing solution for the beauty and wellness industry in Latin America; US$1m in Aurabeat Technology, a producer of air purifiers that are FDA-certified to destroy viruses and bacteria; and a further €575,000 investment in Postoplan OÜ, a social network marketing platform which helps create, schedule, and promote content.

In total, TMT has invested US$14.6m in the first six months of 2021 and still retains cash of US$22.8m (78¢ a share) to invest on its debt free balance sheet, a sum representing 12 per cent of the latest US$190m (653¢ a share) portfolio valuation. It’s a very conservative valuation, too, given that exits and follow-on funding rounds on its portfolio of over 40 investee companies are at significantly higher valuations than the carrying value in TMT’s accounts.

Indeed, as I noted at the end of last year (‘Exploiting share price dislocations’, 7 December 2020), there is potential for TMT to reap a huge windfall if cloud storage provider, Backblaze, achieves anything like its rumoured US$1bn IPO valuation. TMT’s 10.85 per cent holding in Backblaze was valued at US$56m (192¢) in the 2020 accounts. The global cloud storage service market is forecast by MarketsandMarkets to grow from $50.1bn to $137.3bn by 2025, and the company’s easy-to-use, affordable cloud storage is clearly well positioned for growth in the current cost-saving environment.

Note 1: Simon advised taking profits on TMT Investments at 580c a share to bank 140 per cent gain including dividend of 20c ('Takeovers, tender offers and taking profits', 9 September 2019), and subsequently advised buying back the shares  at 318c ('On the hunt for recovery buys', 6 July 2020). 

Note 2: Simon advised taking profits on Futura Medical at 34p a share on Monday, 14 October 2019 ('Bargain Shares: golden opportunities', 14 October 2019). The selling price is used in the performance table.

Note 3: Simon advised selling Mercia Asset Management at 27.5p a share on Monday, 9 December 2019 ('Taking stock and profits', 9 December 2019). The selling price is used in the performance table.

Source: London Stock Exchange opening offer prices at 8am on Friday, 1 February 2019 and latest bid prices or when Simon advised exiting the holding.

The point is that although TMT’s shares are priced on a 73 per cent premium to proforma net asset value after factoring in the revaluations of PandaDoc, 3S Money Club and the exit from Klear, the share price premium will shrink dramatically as further exits are made, and TMT’s shareholdings are revalued significantly higher on the back of liquidity events.

So, although TMT’s shares have surged by 240 per cent from 318¢ to 1,080c on an offer-to-bid basis since I turned buyer again 12 months ago (‘On the hunt for recovery buys’, 6 July 2020), and are up 40 per cent since I covered the annual results 13 weeks ago (‘Five investment company bargains’, 8 April 2021), I would definitely run profits.

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