- Net asset value edges up to £49.1mn (88.2p a share)
- Small net profit of £0.3mn in latest six-month period
- Disposal of Exscientia shares helps lift net cash to £5.8mn
- Further valuation upgrades for Pulsiv and CanGraPHIC
Edinburgh-based Frontier IP (FIPP:64p), a technology investment company that provides commercialisation services to university spin-outs in return for ‘free equity’ stakes, continues to make strong progress with its investee companies, but portfolio valuations have not been immune to the wider technology sector de-rating.
In the six months to 31 December 2022, the group booked a £0.3mn profit, selling down a further £3.4mn shares in Nasdaq-listed Exscientia (US:EXAI), a clinical-stage pharma technology company pioneering the use of artificial intelligence (AI) to design new drugs. However, its remaining stake halved in value to £3.46mn, accounting for 7 per cent of group net asset value (NAV) of £49.1mn.
That said, Frontier has realised nearly £10mn from an investment that only cost £2,000 and has a free ride on 782,400 shares in Exscientia that have added £1mn (1.8p a share) to NAV since the period end. Moreover, the disposal has strengthened the group’s liquidity position; net cash of £5.8mn (10.4p a share) is available for new investments and to meet annual running costs.
Electrifying investments
The group’s largest portfolio investment is an 18.2 per cent stake in University of Plymouth spin-out Pulsiv Solar. It is now worth £9.52mn (19 per cent of group NAV), up from £9.1mn (30 June 2022) and £5mn (31 December 2021). The valuation is underpinned by last summer's equity funding round, which raised £1.6mn to develop and scale up its technology as well as a raft of commercial agreements to monetise the technology's commercial potential.
Specifically, Pulsiv’s on-chip technology improves the energy efficiency of power supplies, battery chargers, LED lighting and photovoltaic solar cells. It has the potential to lower costs because it uses fewer system components and can be fitted into smaller-form factors. The benefits to consumers include reduced energy consumption and lower bills. The company has put in place a series of distribution agreements with leading electronic component suppliers around the world to address different segments of its broad target markets. In addition, leading global manufacturer of power supplies, Salom, has signed a collaboration agreement with Pulsiv, describing the technology as "game-changing".
The £0.45mn valuation uplift on the holding in Pulsiv contributed to the £3.9mn increase in the value of Frontier’s unquoted equity and debt investments, more than offsetting the £3.5mn fall in the value of the Exscentia stake. Almost half the valuation gains (£1.8mn) came from Cambridge University spin-out CamGraPhIC. The company is developing graphene-based photonics technology for scalable optical transceivers, devices at the heart of high-speed data and telecommunications networks, which could become a core enabling technology for 5G and 6G networks.
CamGraPhIC’s technology can operate at speeds twice that achieved by existing technologies, and uses 70 per cent less energy, too. Sir Michael Rake, former chair of BT Group (BT.A), invested in the company’s latest funding round, which raised £1.26mn to complete fabrication and testing of demonstration devices. They are now being tested by customers in the chip and telecoms sectors. The equity raise underpins the £1.8mn valuation uplift in Frontier’s 20.8 per cent stake. It looks conservative from my lens.
Priced for a favourable outcome
Frontier’s share price rallied 35 per cent after I last highlighted the investment case (‘Britain’s future technology winners’, 3 November 2022), but has given back the gains even though the group has maintained its NAV and is reporting strong progress from investee companies that are positioned to help solve fundamental problems around climate, energy, food, water and health. None of these challenges has dissipated. The deep 27 per cent share price discount to NAV is unwarranted. Buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com at £16.95 each plus £3.95 postage and packaging. Details of the content can be viewed on www.ypdbooks.com.
Promotion: Subject to stock availability, both books can be purchased for £25 plus £5.75 postage and packaging.
