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Exploiting market anomalies

Two small-cap investment companies are set to reap hefty gains from IPOs of portfolio companies, while a property company is selling assets well above book value, too
Exploiting market anomalies

Efficient Market Theory dictates that it’s impossible to outperform the market through expert stock selection or market timing given that share prices already reflect all information.

However, the theory clearly fails to work in the under-researched small-cap space where information voids can be regularly exploited. A good example is TekCapital (TEK:32p), a technology investment company I recently highlighted when the shares were priced at 25p (‘On the hunt for hidden value’, 11 October 2021).

In the past week, Tek has closed a crowdfunding early for its Innovative Eyecare subsidiary and filed draft registration documents for a US IPO, the implication being that operational progress warrants a decent premium to the US$20m pre-money valuation previously placed on the business. In addition, the US Food and Drug Administration has provided the food industry with voluntary short-term goals for sodium content in commercially processed, packaged, and prepared foods to reduce excess population sodium intake. This is a major positive for Salarius, a food technology business that owns a patented process to produce nanoparticle sized salt, Microsalt®, a new all natural, non-GMO, Kosher, low-sodium salt. Tek’s 97 per cent stake in Salarius has a modest book value of US$3.6m. I raise my target price from 35p to 45p to reflect these developments.

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