- Fieldworks funding round exceeds target
- Pulsiv makes heavyweight appointments
- Frontier IP’s share price on 57 per cent discount to NAV
The 24-month bear market in Aim-traded shares has not only led to a 44 per cent decline in the FTSE Aim-All Share index, but it has created some eye-watering deep value opportunities to exploit. Edinburgh-based Frontier IP (FIPP:38p), a technology investment company that provides commercialisation services to university spin-outs in return for ‘free equity’ stakes, falls firmly into this category.
To put the scale of its undervaluation into perspective, the group’s last reported net asset value (NAV) of £49mn (88.2p) is 132 per cent higher than its £21.1mn market capitalisation even though Frontier held net cash of £5.85mn (10.5p) at the start of 2023. Since then, it has sold down £1.5mn shares in Nasdaq-listed Exscientia (US:EXAI), a clinical-stage pharma technology company pioneering the use of artificial intelligence (AI) to design new drugs. Frontier still holds 0.49mn Exscientia shares worth $2.7mn (£2.2mn).
So, after factoring in estimated operating costs of £1.5mn for the first half of 2023, and a post-period £1mn investment in Cambridge University spin-out CamGraPhIC, a developer of graphene-based photonics technology for optical transceivers, I estimate that the liquid stake in Exscentia and pro-forma cash account for £7mn (12.5p) of NAV of £49mn. It means that ignoring goodwill of £2mn on the group’s balance sheet, other investments worth £40mn (72p) are in the price for £14mn (25p), or 65 per cent below their carrying valuations. That’s an absurd discount given the progress being made by multiple investee companies.
Smart AI-enabled harvesting technology
In the past month, harvest robotics developer Fieldwork Robotics, a spin-out from the University of Plymouth, has secured a £1.5mn investment from Elbow Beach Capital, a decarbonisation, sustainability and social impact investor. A Seedrs funding round aimed to raise an additional £0.6mn, but it has already raised £1.4mn from 491 investors ahead of this week’s close, such is the demand. The £1.5mn carrying value of Frontier’s 22 per cent equity stake (pre-Seedrs funding round) in Fieldworks offers capital upside, too.
Having developed the world's first raspberry-harvesting robots to improve farm efficiency, reduce food wastage and help solve the problem of worker shortages, the new funds will be used to grow Fieldworks’ team, outsource robot manufacture and attract more farmers to its harvest-as-a-service offering. Raspberry producers in particular face several issues including chronic labour shortages and dwindling net margins. Picking raspberries accounts for over half of total production costs and finding workers is not getting any easier. In the UK, labour shortages have been exacerbated by Covid-19, Brexit, the war in Ukraine and high employment levels in competing sectors.
Fieldworks’ robots are now picking fruit at farms in Portugal run by the Summer Berry Company, a supplier to UK supermarkets Sainsbury's, Waitrose and M&S. The plan is to have more than 100 robots by 2025 and treble the harvesting speed to tap into a $2bn (£1.6bn) global market opportunity. Sensibly, Fieldworks has been beefing up its senior managing team to lead the next stage of its growth.
Electrifying investments
Frontier’s largest portfolio investment, an 18.2 per cent stake in another University of Plymouth spin-out, green technology company Pulsiv Solar, accounts for £9.52mn (17p) of NAV.
Specifically, the company’s on-chip technology improves the energy efficiency of power supplies, battery chargers, LED lighting and photovoltaic solar cells, so lowering energy consumption and consumer bills. Importantly, Pulsiv has secured multiple distribution agreements with leading electronic component suppliers around the world to address different segments of its target markets to exploit the commercial opportunity.
Bearing this in mind, Pulsiv has made heavyweight senior management appointments this week. Mark Gerhard, a serial entrepreneur with a long history of growing and exiting businesses in the video games, artificial intelligence (AI) and cyber security sectors, has been appointed chairman. Gerhard is chairman of Nasdaq-quoted investment research platform Marketwise (US:MKTW), and founder of investment firm Cambridge Venture Partners. Pulsiv has also recruited Dr Tim Moore from SharkNinja (US:NYQ), a Nasdaq-quoted consumer electronics group, as its full-time chief product officer.
Other investee companies in the news include Alusid, an eco-friendly manufacturer of tiles from recycled industrial waste (tile dust, tableware production sludge, glass and ceramics). The company’s first range of mass-produced wall tiles made from sustainable materials has been launched in Topps Tiles, the UK's leading tile specialist.
Frontier’s de-rating a buying opportunity
Frontier’s share price has fallen 40 per cent since the interim results in mid-March, a de-rating that is in no way a reflection of the operational progress of its investee companies. Rated on an unwarranted 57 per cent discount to NAV, the shares rate a bargain basement buy ahead of annual results in mid-November. 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 P&P of £3.75, or £25 plus P&P of £5.75 for both books.
