Tekcapital (TEK ), an intellectual property (IP) investment group, saw bumper portfolio growth in its unaudited results for the 6 months ended 31 May 2022 (H1 2022)
Financial performance in H1
Tekcapital reported a 13% increase in net assets in the half to a record US$76.9m, up from US$68.1m on 30 Nov 2021. NAV per share also increased 6% HoH to US$0.51 from US$0.48 on 30 Nov 2021. Currently, TEK shares are worth 27p, representing a significant 35% discount to its NAV as of the day of the announcement.
Despite the current broad downturn in equities, the company's portfolio valuation also increased 16% HoH to US$74.3m from US$63.9m on 30 Nov 2021.
Total income came in at US$8.0m, driven primarily by a net increase of US$7.5m in the book value of Tekcapital's holdings. The company also completed a US$2.5m share placing during the period.
Tekcapital's Portfolio
Tekcapital's portoflio consists of four companies: Belluscura, Lucyd, Guident, and Salarius. We have covered their IP and progress so far this year, and all remain revenue-generating as of this announcement:
Belluscura (BELL) was awarded a Distribution and Pricing Agreement from the US Defense Logistics Agency, one of the world's largest buyers, for its signature X-PLO2R portable oxygen system. Belluscura also expanded in China through an agreement with InnoMax Medical Technology. China has four times the medical need for Belluscura's product as the US. Following this agreement, Belluscura raised £5.7m to fund its Chinese operations. TEK owns 14% of Belluscura, worth US$18.9m.
Lucyd, a producer of smartwear, is currently awaiting its NASDAQ listing where it will trade under the ticker LUCY. Lucyd sales grew over 100% YoY in Q1 2022, and the company has secured distribution agreements with DICK's Sporting Goods and Best Buy Canada. TEK owns 100% of Lucyd, worth US$27.1m, and 81% of its US operating subsidiary Innovating Eyewear.
Guident, autonomous vehicle innovator, was recently selected as a vendor to the Jacksonville Transportation Authority. It has filed for 8 patents in the US, and is quickly establishing itself as a leader in advanced autonomous vehicle control systems. Guident's asset value on TEK's balance sheet has consistently increased since initial investment in 1H 2018, reaching £22m in just 4 years. It is now TEK's largest holding, representing roughly half of its total book value.
Salarius (now known as MicroSalt Ltd) successfully completed its roll-out of SaltMe! crisps to Kroger, the US's largest supermarket chain by revenue. Salarius pioneered MicroSalt, which contains half the sodium content of regular table salt. MicroSalt recently executed its first bulk B2B order in the US and continues its expansion. TEK has raised the possibility of a potential future listing of MicroSalt in London, although an official announcement has yet to be made. Tekcapital owns 97.2% of Salarius worth US$7m, and Salarius owns 73% MicroSalt.
Dr Clifford M. Gross, Chairman and CEO, commented on the results: "We are glad to report solid half-year performance for the Group. Our key portfolio companies are all revenue generating, progressing well, have capable management, and should reach significant additional milestones by the end of 2022. We are excited about what we have achieved in the first half of 2022 and about our potential near-term growth and performance."
View from Vox
Today's trading update follows TEK's strong FY21 performance when the company announced a 108% net asset increase and a 243% increase in income year on year. TEK has managed to defy the larger downturn in equities, with its stock roughly flat year to date and up an impressive 40% in the past 12 months.
Investors' confidence in Tekcapital is justified given the consistent revenue and value growth of its assets since initial investment in 2018. TEK has proven that it can pick IP companies with the potential to grow and disrupt their respective sectors, despite repeated headwinds in the global economy over the past 5 years.
Today's update continued the trend of net asset growth, largely driven by increases in the values of MicroSalt and Lucyd. Tekcapital completed a £2m capital raise in May through the placing of 8m new ordinary shares at a price of 25p, which is being utilised to further accelerate portfolio growth.
Additional milestones are expected from TEK's companies in 2022, including Lucyd's IPO, and potentially MicroSalt's listing as well. These events may boost the company's NAV even further.
Dr Clifford M. Gross, Chairman and CEO, commented on the results and future prospects for TEK:
"...the Board is confident that continued investment in our portfolio companies remains the right approach for long-term value creation. We believe that we are executing on our strategy and this should result in increases in returns on invested capital as our portfolio companies continue to mature and some achieve meaningful exits, which we hope to see in the next 12 months."
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