An unloved deep value play

Allied Minds (ALM:17.5p), a Boston-based intellectual property (IP) commercialisation company focused on investing in early-stage companies with disruptive technologies, is undertaking a strategic review that could lead to an outright sale of the company, or alternatively distribution of its assets and cash reserves to its long-suffering shareholders.

The complexities of IFRS accounting standards means that the best way to value Allied Minds is on a sum-of-the-parts basis given that the last reported net asset value of $44.65mn (15.1p a share) in the recently published 2021 annual accounts materially understates the value held in its portfolio companies.

For example, Allied Minds’ largest investee company, Federated Wireless, raised an additional $14mn (£11.4mn) in a Series D funding round last month (to add to the $58mn already raised) at a post-money valuation of $302mn. It implies that Allied Minds’ 23.96 per cent fully diluted stake is now worth $72.3mn (24.5p a share), or 40 per cent more than Allied Minds own market capitalisation of £42mn (17.5p).

Heavyweight investors Fortress Investment Group, Singapore’s sovereign wealth fund, GIC, and Cerberus Capital Management all participated in the funding round. It’s easy to understand why. That’s because Federal Wireless’ operates at the cutting-edge of shared spectrum Citizens Broadband Radio System (CBRS) that is reshaping wireless connectivity for cloud-based technologies.

By providing customers with a secure private wireless network that is both high performance and accessible on a low-cost subscription, Federal Wireless’ revenue almost quadrupled last year, buoyed by collaboration agreements with hyperscale channel partners AWS, Cisco and Intel. The company now has more than 350 corporate customers and 90,000 connected devices, serving the defence, government, education, utilities and telecoms markets across North America.

It’s not the only one of Allied Minds’ portfolio companies that has raised new capital as OcuTerra Therapeutics closed a $35m Series B funding at a post-money valuation of $51.3m, placing a valuation of $6.3mn (2.1p a share) on Allied Minds' 12.33 per cent fully diluted shareholding. A Phase II clinical trial of OcuTerra’s non-invasive eyedrops for use in early-stage diabetic retinopathy, a disease that results to loss of vision for diabetic patients, will commence in the next quarter.

In addition, Orbital Sidekick, a company that is developing aerial and space-based hyperspectral imaging and analytics to enable efficient monitoring of natural resource assets and infrastructure integrity, is in advanced talks with strategic partners to provide funding to add its product to an additional six satellite launches. Allied Minds’ stake was valued at $11m (3.7p) following a $16m Series A financing round in April 2021. 

Orbital has invested heavily in product development, engineering, and analytics, and is now growing its sales & marketing team ahead of next quarter’s launch of its Global Hyperspectral Observation Satellite constellation, known as GHOSt. The company recently signed a contract with one of the largest pipeline operators in North America – Energy Transfer – to deliver recurring monitoring services from its satellites through 2023, and won a major work programme contract with In-Q-Tel, a North American Venture Capital firm. Orbital is also developing products for the mining and agriculture industries, along with fire fuel and carbon mapping capabilities, and plans to expand its footprint within the defence and intelligence community.

Portfolio company, BridgeComm, is also engaged in discussions (with Aeroequity Industrial partners) to provide funding to support delivery of its patented technology. The company provides ultra-high-speed mesh connectivity for terrestrial, airborne and space systems that require 10-100+ Gbps throughput in the space and ground applications used by commercial and US government customers.The Space Development Agency is one such customer, and there is growing interest in the cutting-edge technology following Russia’s invasion of Ukraine. That’s because current battlefield communications tend to use a single point of distribution with the risk of a single point of failure, but Bridgecomm's high-speed optical communications allows for dispersed communications which are difficult to detect and intercept.

Boeing HorizonX Ventures, the venture arm of Boeing Company, is co-investor in BridgeComm alongside Allied Minds, which holds a 62.9 per cent equity stake that had a read through valuation of $23.9m (8.1p a share) at the last funding round in September 2018. However, investment fund Crystal Amber (CRS), which holds a 18.4 per cent stake in Allied Minds, takes a more cautious view. The fund places a 2p a share value on the BridgeComm holding in its 36p a share spot net asset value calculation for Allied Minds, slightly below my own read through sum-of-the-parts valuation of 38.5p a share when I last suggested buying the shares, at 19.5p (‘Bargain Hunting in the tech sector carnage’, 21 February 2022).

Importantly, Allied Minds’ retains a positive cash position with pro-forma cash increasing by 50 per cent to $13.4mn (4.5p a share) since the start of 2022 following the disposal of its holding in restaurant supply chain software provider Touch Bistro. The bottom line is that an outright sale of the company or asset disposals by a new board of independent directors has real potential to release shareholder value. Bruce Failing, previously senior independent director, has now assumed the position of interim chairman after Harry Rein stepped down from his position. Buy.

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