- Portfolio attracts high-profile technology investor
- 50 per cent share price discount to NAV
Edinburgh-based Frontier IP (FIPP:40p), a technology investment company that provides commercialisation services to university spin-outs in return for ‘free equity’ stakes, has announced a successful capital raise for portfolio company Alusid. Alusid creates premium-quality tiles and architectural surfaces by recycling industrial waste ceramics, glass and other materials, much of which would end in landfill.
As part of a larger £1.13mn funding round, Octopus AIM VCT funds are investing £0.5mn in Alusid, which values the company at £9.5mn. Frontier IP holds a 35.4 per cent equity stake in Alusid worth £3.3mn. The cash proceeds will be used to support Alusid's expansion into new product ranges and territories. For instance, the company is developing hard-wearing floor tiles, which are expected to launch commercially this year, and is in discussions with potential distributors in Scandinavia and Northern Europe. It is also exploring options for an IPO later this year.
There is clear momentum in Alusid’s business. In the past year, the company has launched environmentally friendly products with Topps Tiles, the UK's largest tile retailer, and is in collaboration with Imerys, a world leader in speciality minerals, to develop floor tiles. Other customers include H&M, Pret a Manger, BBC and Starbucks.
Prospects for further gains on Frontier’s portfolio are being woefully undervalued. To put this into perspective, Frontier holds a liquid £2.3mn stake in Nasdaq-listed Exscientia (US: EXAI), a clinical-stage pharmaceutical technology company, pro-forma cash of £2.5mn (after factoring in operating expenses in the past six months), a £33mn equity portfolio, £5.9mn of debt investments and £1mn of trade receivables. Ignoring the possibility of valuation uplifts in the forthcoming interim results, the £22.5mn market capitalisation company is rated on a 50 per cent discount to book value.
That’s an extreme discount considering the progress being made by multiple investee companies including its largest holding, Plymouth University spin-out Pulsiv Solar, a green technology company that has developed on-chip technology to improve the energy efficiency of power supplies, battery chargers, LED lighting and photovoltaic solar cells. Frontier IP’s 18 per cent stake in Pulsiv had a read-through valuation of £9.3mn following Pulsiv's last fundraising.
So, although Frontier IP’s share price is slightly shy of my last buy call (‘Bag a technology bargain buy’, 31 October 2023), there is a clear disconnect between the value embedded in an exciting investment portfolio and the price attributed to its investments by the market. Buy.
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