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A deep discount value play

An investment company in early-stage life sciences, healthcare and technology businesses is priced on half analysts' sum-of-the-parts valuations even though its investee companies continue to perform well
A deep discount value play
  • £1.3m investment in London-based robotics and AI company Q-Bot
  • $730,000 direct investment in regenerative medicine company EpiBone
  • Positive trading update from health and life sciences subsidiary ProAxsis
  • Priced on half analysts’ sum-of-the-parts valuations

NetScientific (NSCI:88p), an investment company that backs early-stage life sciences, healthcare and technology businesses, has released multiple positive announcements for its investee companies and further diversified its portfolio since my last update (‘Glaring valuation anomaly exposed’, 4 November 2021).

The group has used £1.3m of its cash pile to take an 18.7 per cent equity stake in Q-Bot, a London-based robotics and AI company that has developed technology and digital solutions for the inspection, maintenance, insulation and upgrade of buildings and homes. Its patented robotic system for applying insulation in tight spaces and suspended floors (to reduce heat loss and prevent draughts, damp and mould) won the Queen's Award for Enterprise in the Innovation category in 2020. With energy prices at record highs, and the UK moving to net-zero carbon emissions, demand for Q-Bot’s technology from the construction and engineering industry can only rise. The group will further benefit from third-party investment in Q-Bot through the carried interests held by its investment services firm, EMV Capital.

NetScientific has also taken a $730,000 (£540,000) direct investment in US lifesciences’ company EpiBone, a regenerative medicine company focused on bone and cartilage reconstruction, as part of a $11m funding round alongside Boston-based investors and family offices. EpiBone's lead bone product, EB-CMF, a potential treatment for ramus continuity defects in the mandible, is in Phase 1 human trials. The technology has the potential to transform the bone and cartilage space by making implants from patients' own cells across multiple applications. Professor Robert Langer, co-founder of drug giant Moderna (MRNA), sits on EpiBone's board.

In addition, NetScientific’s 95 per cent-owned portfolio company ProAxsis, a health and life sciences spin‑out of Queen’s University Belfast with a focus on respiratory diagnostics, has issued a positive trading update.

The highlights include the development of the NE Premium assay, which has 100-fold improved sensitivity compared with the current product, with commercial launch slated for later this year; in-licensing from the University of Geneva of a highly novel protease-related immunoassay for use in the monitoring of bone health in conditions such as osteoporosis; in-licensing from AstraZeneca of its internally-developed Covid-19 serology (antibody) assay; and the development of a 2-plex protease multiplex panel, which enables measurement of two key proteases (neutrophil elastase and proteinase-3) associated with Covid-19 symptom severity.

Some private investors were expecting more, hence the 9 per cent share price reversal post the ProAxsis update last Friday. However, I am comfortable with the news and see no reason to change the £38m (180p a share) sum-of-the-parts valuation I outlined when I initiated coverage at 102p (‘Back life sciences tech with a hefty margin of safety’, 20 July 2021). Nor does analyst Matthew Davis at WH Ireland who arrives at the same valuation. Buy.

 

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