Diving deeper into the portfolio
The investment case for Imperial Innovations Group PLC (LONDON:IVO) rests in the potential to unlock hidden value from within its portfolio of 95 companies, which span healthcare (therapeutic/medtech), engineering/materials and ICT/digital. Healthcare currently accounts for c 70% of the portfolio value (£252m at 31 July 2014), although Innovations’ management plans a rebalance to c 60% healthcare and c 40% technology (engineering/materials and ICT/digital). In this special report we highlight the potential within the technology portfolio, profiling seven companies that could add substantial value over the next few years, above their relatively modest carrying values.
Engineering/Materials: £40m invested for £56m value
With a relative scarcity of overall investment in the engineering sector, a result of the more extended timescales and higher levels of capex required, Innovations is able to take its pick of potential opportunities. Innovations is looking for technologies with a clear competitive edge where there is already some engagement with potential customers, to identify the route to market and gauge the commercial opportunity. In this report we provide an overview of the investment strategy and profile four companies: Nexeon, Plaxica, Econic and Aqdot. The current Eng/Materials portfolio is valued at £56m, or 22% of IVO’s total portfolio.
ICT/Digital: £13m invested for £18m value
Innovations seeks to invest in software companies run by entrepreneurial and experienced management teams operating in high growth markets, which include artificial intelligence, data analytics, fintech and IT security. Compared to its therapeutics portfolio, software companies typically require significantly less cash to reach break-even, so the focus of investment is more on rapidly scaling the business to exploit the market potential. In this report we provide an overview of the ICT investment strategy and profile three companies: Cortexica, Just Yoyo and Featurespace. The current ICT portfolio is valued at £18m, or 7% of IVO’s total.
Valuation: Uplift potential supports NAV premium
IVO’s shares trade at a 60% premium to the last reported NAV (295p per share at 31 July 2014). We believe this is justified, based on strong historical portfolio performance and the prospect of a significant uplift in the next couple of years, from across its mature and emerging companies (ie as valuation inflection points are reached). Its private companies typically have a conservative carrying value (at cash or last financing round), and we profile seven such companies in this report. With a strong balance sheet (£176.5m in cash/investments at 31 July 2014), IVO is well positioned to support the development of its portfolio companies.
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