- MicroSalt has market capitalisation of £18.5mn at listing price
- Tekcapital retains 77 per cent stake and convertible loan notes
- Tekcapital spot NAV more than double its current share price
MicroSalt (SALT:51.5p), a company that produces low-sodium salt, has raised £3.1mn, at 43p, in an Aim initial public offering (IPO). It’s less than initially planned, but in a moribund market for new listings, it is one of the few IPOs to get off the ground (‘Will MicroSalt whet investors’ appetite?’, 3 October 2023).
MicroSalt’s patented solution dissolves much faster on the tongue, so delivers the same sense of saltiness as traditional salt, but uses half the amount of sodium, a major contributor to hypertension and heart disease. The company has created a consumer brand of potato crisps, Salt Me!, which are now sold across 400 retail stores in the US, and has launched its MicroSalt shakers in 450 stores in the US as well as on Amazon in both the UK and US.
Moreover, the company has delivered its first commercial-volume order for a Fortune 500 retailer, which will use the solution for its own branded nuts to be sold across an initial 800 stores. Multiple multi-national companies are currently testing the product and are in price negotiations ahead of placing orders.
In the first half of 2023, MicroSalt reported a pre-tax loss of £1.7mn on revenue of £0.3mn, so it’s the potential to scale up sales rapidly that whets the appetite of investors. Given the obvious health benefits of the patented product, it’s not going to take that many deals with large fast-moving consumer goods (FMCG) customers to ramp up revenue and turn a business with a relatively fixed cost base profitable. MicroSalt looks to have a winning formula.
The IPO is also positive for Aim investment company Tekcapital (TEK:10.25p), which holds 33.3mn shares (77.3 per cent stake) in MicroSalt worth £17.1mn, and $2.6mn (£2mn) of convertible loan notes repayable in December 2025. Tekcapital’s investment in MicroSalt is worth more than its own market capitalisation of £18.3mn.
Deep share price discount to sum-of-the-parts valuation
In addition, Tekcapital has listed investments in Innovative Eyewear (US:LUCY), the US operating subsidiary of Lucyd, the first company to deliver prescription glasses with Bluetooth technology, and Aim-traded respiratory medical device company Belluscura (BELL). The holdings are worth £1.7mn (1p) and £2.1mn (1.2p), respectively, and are in the price for free.
The same is true of the company’s $18.3mn (8.1p) investment in Guident, a developer of remote monitoring and control centre (RMCC) software that improves the safety of autonomous vehicles and delivery robots.
Guident has signed software as a service (SaaS) agreements with European partners to provide its RMCC software for fixed-route electric bus services, having delivered its first remote monitoring and control services order to Jacksonville Transportation Authority in Florida. The company has also been awarded funding from Space Florida for a ground breaking project under the Florida-Israel Innovation Partnership programme.
| Tekcapital's portfolio fair value estimate at 1 February 2024 | |||
| Portfolio company | Carrying value 30 June 2023 | Estimated carrying value 1 February 2024 | Value per share |
| Guident | $18.3mn | $18.3mn | 8.1p |
| Innovative Eyewear | $4.6mn | $2.2mn | 1.0p |
| Microsalt | $17.1mn | $21.8mn | 9.6p |
| Belluscura | $6.3mn | $2.7mn | 1.2p |
| Smart Food Tek | $0.0mn | $0.0mn | 0.0p |
| Guident convertible loan notes | $1.0mn | $1.0mn | 0.4p |
| MicroSalt convertible loan notes | $1.5mn | $2.6mn | 1.2p |
| Portfolio fair value | $48.6mn | 21.6p | |
| Net current assets (adjusted for second half operating costs) | $1.0mn | 0.4p | |
| Intangible assets | $0.3mn | 0.1p | |
| Total NAV | $49.9mn | 22.1p | |
Source: Tekcapital's 2023 interim accounts and London Stock Exchange RNS. The company reports in US dollars. Belluscura current valuation based on latest share price of 20p a share and holding of 10.6mn shares. Innovative Eyewear valuation based on stock price of $0.43 and holding of 5.19mn shares. MicroSalt valuation based on share price of 51.5p and holdings of 33.3mn shares. Guident valuation as reported in Tekcapital's 2023 interim accounts. Exchange rate used £1:$1.268.
Bearing this in mind, Guident has engaged a leading US investment bank to raise capital for expanding its RMCC business. At the bare minimum, it should provide investors with clarity that there is significant value in Tekcapital’s investment in the company. It’s worth noting, too, that Guident is conducting testing and appraisal of its proprietary regenerative shock absorber technology after completing successful paid-for proof-of-concept trials with a major tyre company. This could be a potentially lucrative recurring revenue stream, too.
So, although Tekcapital is the laggard in my 2022 Bargain Shares Portfolio, and the share price is below the 13p level in my last article, the 54 per cent share price discount to my spot NAV estimate of 22.1p is incredibly harsh. Buy.
