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Hunting for small-cap hidden gems

A small-cap investment company has material hidden value on its balance sheet, and valuable listed holdings, too.
September 29, 2021

I am always on the lookout for special situations offering a hefty ‘margin of safety’. Investment companies are always a good starting point as unwarranted disconnects can develop between the intrinsic value of a company’s assets and the price in the market.

Of course, many of these are ‘value’ traps, reflecting chronic past underperformance. This was certainly the case with NetScientific (NCSI:117p). Shareholders who backed the 2013 IPO lost more than 90 per cent of their capital as previous management adopted a passive approach to investing in early stage life sciences, healthcare, and technology companies.

However, a boardroom clear out at the start of last year brought in an experienced and proactive management team (new chairman, chief executive, and finance director) focused on creating a larger portfolio with varying time horizons, stages of development and wider focus. The major issue being that the company simply didn’t have the requisite expertise and resource, below board and chief finance officer level, to fully implement the strategy.

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