Tekcapital – Is this IP investor worth a look?

I recently spoke at length with Dr Clifford Gross, the Miami-based founder and boss of Tekcapital (LON:TEK) the intellectual property investment group, and came away feeling very positive about the company’s prospects.

The value of its investment portfolio is very much more than double the current market capitalisation, while events due soon could see that discount widen even more.

The Business

Its basic business is in identifying and then capitalising upon a selection of projects that have been created by some of the world’s leading universities.

From its network of global contacts, the company gleans the thousands of patents and schemes that originate as the result of the billions of pounds spent each year upon technology research.

Its network spans some 160 countries around the world, over 4,500 research bodies and universities, sifting through patent applications, of which some 100,000 are filed each year.

After sifting through the various applications, it scratches away at the potential viability of commercialising such ‘bright ideas’ and eventually select several for further analysis.

It has a panel of some 60 industry experts from various fields, using their knowledge to delve deeper into such prospective investments, then evaluate development candidates.

Apart from offering this ability as a service to hundreds of its university, research institution and business subscribers, it also helps to provide them with technology transfer services as they look to commercialise new disruptive technologies.

More importantly though, the company also selects several for its own investment.

The group creates its value by investing in new, university-developed discoveries that it believes can enhance people’s lives.

It considers that when you couple commercialisation-ready, compelling university intellectual property with visionary individuals, then vibrant companies will emerge that could produce strong returns on invested capital.

Those eventual investments are then progressed towards their own IPO’s, giving them the opportunity to raise further development capital.

In due course, the company expects each investment to outperform its sector, providing it with the opportunity to exit part or all of its investment, which in turn gives the group the ability to return a portion of the proceeds as a ‘special dividend’ to its shareholders.

To date Tekcapital has done very well for its investors. Its ability to transform university discoveries into valuable, needed products has created a multi-year track record of significant growth of net assets and returns on invested capital bearing witness to its success.

The Portfolio

Currently the £37m capitalised group has over 70 patents within its portfolio of interests and that list is ever-growing.

Its business model is to take the pick of those researched situations, invest in them, team it up with a ‘star-power’ management with both experience and vision, then progress it forward to an eventual fund-raising, further development and success, before part or total exit of its equity position.

Its main portfolio constituents are:

Lucyd – www.lucyd.co 100% owned

Upgrading prescription eyewear with software apps and enabled with Bluetooth technology to keep users safely connected.

Its subsidiary Innovative Eyewear Inc (NASDAQ: LUCY) has recently floated in the US following a $7.35m fund-raising, leaving TEK with 67.4% of its quoted equity.

Guident www.guident.co 100% owned

Developing intellectual property and software solutions to increase the safety and efficiency of electric and autonomous vehicles.

MicroSalt www.microsaltinc.com 97.2% owned

Delivering full flavour and reduced sodium in snack foods with MicroSalt, an all-natural, patented salt substitute.

Bellascura www.bellascura.com (LON:BELL) 14.14% owned

Developing innovating patented oxygen enrichment devices that expand treatment options and increase affordability.

Nigel Wray holds 11.19% of the equity of this UK quoted business.

The Equity

There are some 149.6m shares in issue.

Larger holders include James Knight (5.10%), Nigel Wray (4.83%), Paul Coburn (3.10%) and Edale Capital (2.61%).

Broker’s View

Special situations analyst Tania Maciver at SP Angel, the group’s NOMAD and broker, rates the shares as a Buy.

At the end of July her report on the company computed that the valuation of the portfolio companies was worth some 44p a share. That was before Innovative Eyewear went public in the States, so we can assume that the value has increased.

SP Angel conclude, that with significant milestones being anticipated, the true value of TEK is upwards of 66p per share, which value the group at over £98m.

My View

I strongly suggest that readers look at the website of each portfolio company, they give far more detail on the individual companies than I have space to cover.

A year ago, the group’s shares were trading at 31p each, since when they have been up to 38p, before easing back to the current 24.75p level.

This company’s management has shown that it has the ability to identify significant opportunities and then take a view for its shareholder’s benefit.

I believe that the group’s shares, at the current price, offer substantial upside as further developments become apparent.

I now set a Target Price of 32p, which is a short-term Target Price.