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Bargain Shares: Targeting undervalued tech winners

Our award winning small-cap stock-picking expert highlights a lowly rated cash-rich fintech fund that continues to outperform and a below the radar Aim-traded technology investment company that is looking to list two of its portfolio companies.
  • Net asset value (NAV) per share after performance fees increases 19 per cent to 155.2p in the 12 months to 31 March 2022
  • Post-period end disposal of stake in interactive investor (ii) realises £42.8mn to boost net cash to £61mn (20.6 per cent of NAV)

Augmentum Fintech (AUGM:116p), the first publicly-listed fintech fund in the UK, has delivered record NAV per share in the 2021/22 financial year, buoyed by £56.6mn of net gains on investments, half of which came from its 6.4 per cent stake in Grover, the Berlin-headquartered technology rentals platform.

In April 2022, the German company completed a Series C funding round, raising a total of $330m (£253mn) in debt and equity, lifting its valuation to more than $1bn and valuing Augmentum’s stake at £42.4mn. That’s more than three times the £12.9mn carrying value of the holding in the 2020/21 accounts, and 5.4 times the group’s total investment to date. Grover is a pioneer in technology rental subscriptions in Europe – the company has more than 1mn registered users – and continues to benefit from the secular shift in the way that consumers are using and accessing technology.

Post the March 2022 financial year-end, Augmentum realised £42.8mn (11 times money multiple) from its 3.8 per cent equity stake in share trading service interactive investor, which has been acquired by Abrdn (ABDN). The disposal accounted for £10.2mn of the group’s investment gains booked, and was one of four realisations completed. It means that having raised £55mn, at 135.5p, a share in a placing last summer, and invested £60.8mn in seven new companies and seven existing portfolio companies in the 12-month period, the group still retains £61mn of cash, a sum accounting for a fifth of NAV.

Importantly, the investment team led by Tim Levene is maintaining a stringent approach when assessing potential new investments, committing to invest in only 0.4 per cent of total opportunities assessed. Moreover, analyst Anthony Leatham at joint house broker Peel Hunt notes that the fund has 19 assets (accounting for almost four-fifths of NAV), that offer downside protection features such as liquidation preference and anti-dilution protection.

It’s also worth noting that Augmentum’s valuations are conservative as 56 per cent of the portfolio fair valuation is referenced to recent transactions, 25 per cent uses public market comparables, and 18 per cent relates to agreed sale prices and external fund valuations. In total, Augmentum’s top 10 holdings (excluding ii) are valued on 5.3 times revenue, materially below the 24 times revenue multiple for the High Growth Fintech Index.

Leatham adds that the portfolio has 50 per cent exposure to digital and lending and infrastructure, market segments that should continue to do well irrespective of the economic backdrop, while a rising interest rate environment is positive for holdings in Tide, an emerging force in the small- and medium-sized enterprises (SMEs) challenger banking sector and peer-to-peer (P2P) lender Zopa. Tide now has over 7 per cent UK market penetration, and along with Starling, is the leading SME challenger banking platform, while Zopa reported record first-quarter revenue and achieved profitability in March this year. The two holdings account for £53.8mn of group NAV of £295mn.

Augmentum’s holdings in Grocer, Tide, Zopa and a £15.4mn stake in Onfido, an AI-based technology company that is building a best-in-class identity standard for the internet, are the most likely near-term portfolio catalysts, analysts believe.

However, even though Augmentum is well funded, has an enviable track record of delivering an annualised internal rate of return (IRR) of 22.6 per cent since inception, and has a well-diversified and conservatively valued portfolio, the share price has retraced back towards the 102p entry point in my 2019 Bargain Shares Portfolio. Trading on an unjustified 25.3 per cent discount to NAV (after performance fees), the current share price is at odds with Augmentum’s sound fundamentals and growth prospects. Buy.


Microsalt commercialising its technology

  • Microsalt executes its first business-to-business bulk order in the US and starts test marketing salt-shakers for food service, restaurants and retail sales
  • London stock market listing being considered for 2023

Tekcapital (TEK:22p), an Aim-traded investment company focused on food technology, autonomous vehicles, smart eyewear and respiratory medical devices, has announced another positive trading update from investee company Salarius, a food technology business that holds a patented process to produce, Microsalt, a new natural, non-GMO, kosher, low-sodium nanoparticle-sized salt.

Having expanded its roll-out of SaltMe! crisps from 2,400 to 3,000 Kroger stores in the US, the business is now experiencing “significant growth in online sales”. It has also executed the first business-to-business bulk order for Microsalt in the US, and started test marketing of the first MicroSalt salt-shakers for food service, restaurants and retail sales.

Chairman Clifford Gross is considering listing Microsalt on the London stock market in 2023, a sensible approach that should bring into sharp focus Tekcapital’s unwarranted discount to my latest NAV estimate of 38p a share. Microsalt recently received an equity investment of $0.4mn from Spanish venture fund Tech Transfer Agrifood at a post-money valuation of $9.27mn, valuing Tekcapital’s 73 per cent stake at $6.8mn (3.75p a share).

To put Tekcapital’s current valuation into some perspective, its stake in Aim-traded respiratory medical device company Belluscura (BELL) is worth £14.3mn (9.5p a share), or almost half of Tekcapital’s own market capitalisation of £32.9mn. This means that the rest of the portfolio is in the price for 42 per cent of its carrying value even though the Nasdaq IPO of Innovative Eyewear (US:LUCY), the US operating subsidiary of Lucyd, the first company to deliver prescription glasses with Bluetooth technology, has potential to generate material upside (‘Exploiting information voids’, 6 June 2022) to the £14.3mn (9.5p a share) carrying value of Tekcapital’s stake.

So, although Tekcapital’s share price has come under pressure since my buy call, I strongly feel that value will out in the end. Buy.

Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.


■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.25 [UK].

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