- £2mn placing of new shares follows £2.5mn raise in February 2023
- Innovative Eyewear’s stock price trebles after launch of AI-enabled smart glasses
- Priced on 50 per cent discount to spot NAV
Tekcapital (TEK:15.25p), an investment company focused on food technology, autonomous vehicles, smart eyewear and respiratory medical devices, has raised £2mn in an oversubscribed placing of new shares, at 15p, adding to the £2.25mn raised in a placing, at 16p, a couple of months ago.
Around £1.6mn of the cash will be used to fund commercial inventory of investee company MicroSalt, a business that has developed and makes a proprietary low-sodium salt. A further £1.5mn has been earmarked for Guident, a developer of remote monitoring and control software (RMCS) that improves the safety of autonomous vehicles and delivery robots, to build out an RMCS facility and fund the fabrication and testing of regenerative shock absorbers for prospective clients in the automotive industry. It’s a sensible use of capital.
For instance, MicroSalt continues to gain traction across the US, working with US Salt LLC – a leading direct supplier of canister salt to the US retail industry – for in-store sales of products across the US Salt system, and undergoing comprehensive testing with several major food companies. MicroSalt's SaltMe branded crisps and salt shakers are now being sold in North American supermarket chains, too. Zeus Capital was appointed corporate broker and Nomad to MicroSalt at the end of last year ahead of a planned IPO on London’s junior market. Tek’s 78 per cent stake in the company is worth $13.1mn, a valuation that has scope to double in the event of a successful IPO.
| Tekcapital's portfolio fair value estimate at 17 April 2023 | |||
|---|---|---|---|
| Portfolio company | Carrying value 31 May 2022 | Estimated carrying value 17 April 2023 | Value per share |
| Guident | $18.1m | $18.1m | 8.2p |
| Innovative Eyewear | $27.1m | $20.6m | 9.3p |
| Microsalt | $7.0m | $13.1m | 5.9p |
| Belluscura | $18.9m | $7.7m | 3.5p |
| Smart Food Tek | $0.04m | $0.04m | 0.0p |
| Convertible loan notes | $1.0m | $1.0m | 0.5p |
| Portfolio fair value | $60.5m | 27.5p | |
| Cash, receivables | $5.3m | 2.4p | |
| Intangible assets | $0.3m | 0.1p | |
| Total NAV | $66.2m | 30.0p | |
| Source: Tekcapital's 2022 interim accounts and London Stock Exchange RNS since 28 July 2022. Belluscura valuation based on share price of 41p a share and holding of 15.138mn shares. Innovative Eyewear valuation based on stock price of $3.98 and holding of 5.19mn shares. Guident investment stated at 31 May 2022 valuation. Cash balance includes £2.25mn raised in February 2023 and £2mn in April 2023. Exchange rate used £1:$1.237. | |||
Seeing the light of an undervaluation
It’s worth noting, too, that Tekcapital’s holding of 5.19mn shares in Innovative Eyewear (US: LUCY), the US operating subsidiary of Lucyd, the first company to deliver prescription glasses with Bluetooth technology, trebled in value to $20.6mn last week after it launched a new app that enables a voice interface for ChatGPT on its smart eyewear. The user can ask questions to ChatGPT through microphones built into Lucyd glasses and hear the responses through stereo speakers. The app works with many other hearables and may be used through a streamlined visual interface on any smartphone to enhance accessibility.
The rerating of Innovative Eyewear is certainly not in the price. I estimate that Tek’s spot NAV is $66.1mn (30p), or almost double its current market capitalisation of £27.2mn (15.25p). Moreover, cash on the balance sheet and the listed stakes in Innovative Eyewear and Aim-traded respiratory medical device company Belluscura (BELL) have a combined value of $33.6mn (15.25p). Effectively, you are getting a free ride on the shareholdings in Guident (last valued at $18.1mn on 31 May 2022) and MicroSalt ($13.1mn at 24 January 2023) even though there is a likely liquidity event for the latter.
So, although the shares are the laggard in my market-beating 2022 Bargain Shares Portfolio, I still expect a positive outcome. Buy.
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