You may previously have read my article “NSCI”. In that article I set out the deep hidden value I believe is contained in NSCI’s holdings.
Particularly, the progress with Q-Bot its robo-insulation service, the cancer therapy moving to Phase 3 Study of PDS101 at PDS, recovering anesthetic greenhouse gases with SageTech, heat recovery ventilation with Ventive and turning waste plastic into an petrochemical feedstock with DeepTech Recycling.
Valuation update “Post Period”
I’ve worked through the post period RNSs (subsequent to 30th June H1 2023 results) to amalgamate what we know.
PDS: Apart from various positive updates, the share price is up slightly. If you know of or follow Avacta (which targets cancer using targetted chemo) and which more than doubled this year, well PDS is a little bit similar. Except it uses T Cells to fight cancer. The “boots on the ground” evidence is very positive.
Q-Bot is expanding beyond the UK and particularly into the US. Ventive are expanding their commercial effort while DeepTech are building a Demonstration Facility.
The net result is a £1.4m uplit in its NAV (that we know about). The market has tracked NSCI upwards and the market cap is also up £1.4m since my prior article.
Market Cap £14.7m, (estimated) NAV £19.5m, Discount to estimated NAV 28%.
I’ve spent some time looking at other holdings and was particularly interested in Glycotest.
Glycotest
Up to 938m patients globally could benefit from regular testing for liver cancers and fibrosis–cirrhosis. This is because they have fatty liver disease that can transition to non-alcoholic steatohepatitis (NASH), or suffer viral hepatitis B or C. The numbers grow as we grow fatter and as population grows.
Glycotest plans to offer a hepatocellular carcinoma surveillance test (HCC Panel) as a clinical testing service, a market estimated to be worth $800m in the US. The clinical evidence for its product “HCC Panel” is very strong. They say prevention is better than cure, well the value of Glycotest is an early cure is much better than later when there is no cure.
In China, where serious liver disease, especially hepatitis B, results in more than 500,000 deaths annually, there is a potential multi-billion-dollar market opportunity for Glycotest’s products that are being developed in partnership with Fosun Pharma.
Beyond the US and China, Glycotest is evaluating options to harness the best return on the investment. WH Ireland models suggest the company could be making sales of $47m and 14 operating profit of $14m by 2030. That puts the current £11m valuation on a future PE of 0.64 (62.5% stake of £11m earnings divided by £11m at a current 60% discount to NAV). Applying a PE of 15 to Glycotest, suggests an uplift of 23X or £103m.
But how far away is it? How real? Well Covid mucked up and delayed their plans. But in May 2023 a new funding round for $1m was arranged by NSCI’s capital under advisory arm EMV. There should be an announcement for US commercialisaton and a funding upround in “late 2023” according to the RNS. So it is imminent! While I doubt it will be 23X it isn’t unreasonable to think that this upround could be 2X. (£22m) which of course is 1.5X the entire market cap of NSCI.
Hidden Value
Have you spotted it reader? EMV.
EMV earned £1.1m in H1 23 when CUA was £23m-25m. Its CUA is now over £30m. So earnings in H2 are around £1.3m and the core loss for NSCI has probably narrowed in H2 23 to less than £0.2m.
But covering costs and breaking even is not the whole story. CUA - capital under advisory - means that NSCI’s EMV capital manages investment for family offices and institutional investors usually under EIS (Enterprise Investment Scheme) which has lots of tax benefits. They charge management fees as above, but also have a carried interest arrangement of 15%-20% above a 10% hurdle.
In plain English EMV shares in some of the upside, when things sell.
Q-bot for example is valued at £27m, and CUA is 30%. If Q-bot were sold for £100m let’s say, then £27x1.1 = £30m, £100m-£30m x 20% = £14m. 1X the current market cap of NSCI.
I appreciate that that is an extreme example (or is it?), but nowhere is that hidden upside in the price. The CUA is above £30.5m and will continue to grow.
This is not advice.
OAK