FIPP - a leap of faith
Is Frontier stepping on the right tiles?
Dear reader,
From wall tiles to floor tiles. It may not seem a great leap. Indiana Jones during his last Crusade, y’know, the one before the subsequent two crusades might disagree.
Alusid
Topps Tiles sells tiles B2C. No surprises there. It even sells Principle tiles which eagle-eyed OB readers as well as eco-conscious customers will know contain 95%+ recycled content and require much less energy to produce too. The Principle tiles are from a company called Alusid which achieved 21.8% sales growth in 2024 according to Topps Tiles web site.
What if the opportunity is about to grow much larger for Alusid in 2025? B2B is a growth area for Topps through its contracts division, Parkside business and Protiler brands. Parkside works with architects and ESG is high up the agenda of any architect today. Topps pleased with double digit growth, is now extending its Alusid sales to a new range of “Mas” floor files (a larger market than wall tiles) but also to B2B sales too. Floor tiles are a bigger opportunity for its supplier Alusid accounting for 60% of all tiles - so time to step forward.
Alusid is one a string of companies that Frontier IP (ticker LON:FIPP) part own. FIPP owns 35.4% of Alusid valued at £3.3m.
The £3.3m valuation is based on a £9.5m post money valuation, when 10 months ago £1.13m was raised to increase Alusid’s production. An IPO is planned perhaps in 2025. Alusid is just one of 5 companies where the word “Exit” was used in FIPP’s annual report.
FIPP, time to flip, where’s the exit?
Here’s a fun fact for the doubters. As I write on a gloomy Saturday morning 0.4% of the UK’s electricity supply is solar. Part of 54.5% at 11am. Wind was 60% earlier today. What happens when the sun doesn’t shine? We use other forms of power. But the link between irradiance and temperature means even northern climes can benefit from solar.
For two years now more investment has gone into solar than ALL other forms of power combined. So there’s an investment base of around $3tn of solar parks and panels worldwide.
Yields per $ have improved by 250% since 2013, and continue to rise. DC power is converted using Microcontrollers into AC which is what our national grid distributes.
So consider Pulsiv. Another FIPP holding. A power conversion technology which can shift conversion efficiency (DC-AC) from 50% to above 90%. So less energy is lost as heat. Consider too, that waste heat actually reduces the efficiency of solar. This is why the UK is generating 0.4% right now. A low temperature offsets low irradiance. If you compared the UK to the Sahara Desert, the higher irradiance of the desert is reduced by higher operating temperatures.
So a technology which improves efficiency, is cheaper to make, cheaper to run, and assuming solar operators achieve a 8% ROI on solar then that’s $240bn of annual income they’re making (on $3tn of panels). Even if by upgrading microcontrollers you achieved a small fraction say 1% of benefit then that drives a $2.4bn a year (and growing) benefit. That would justify $30bn of capex and let’s say Pulsiv can deliver that at a 10% profit margin. That’s a $3bn profit. Today FIPP owns 17.9% worth £10.4m so that’s a £58m valuation.
Think too if it’s not 1%? What if the benefit is 40%? (90% minus 50%)
3rd Jan 25 - the 240W USB-C has been released:
No wonder exit options are under “active consideration” at Pulsiv.
Peeves with Reeves; support a Farmer not a Starmer
I sat through various market commentators (Stockopedia, Vox, Roast, Rebel and others) who have all been considering the impact of the budget. All I hear about are the various companies who are damned to smithereens (well reduction of 8% of profit - I’m being dramatic) due to employers’ NI, and minimum wage rises. And Farmers suffering due to Inheritance Tax. As avid OB readers will know I don’t really go fishing in those parts of the market so none of my investment ideas have been particularly affected - negatively. And I couldn’t give a hoot about the politics so don’t take anything I write at political.
What I’ve been struck by though is not a single commentator seems to have thought about where the vast tax take will go. Is Reeves doing the unthinkable and balancing the books? Don’t be daft! This is Labour.
So where will that largesse go? In fact, not a single commentator appears to have considered that Rachel Reeves not only has vastly increased tax but more than that she has broken (err redefined) the rules on the deficit spending where a reclassification of investment spending means it’s not really spending at all. It’s investment, y’know?
DEFRA is one such recipient.
£7.5bn funding. And what do they want to achieve?
FIPP’s Vaccine Group is going to be a huge beneficiary of this. It’s already received grants from DEFRA but look at the government’s priorities. Anti-microbial resistance. Tackling disease risk. Were DEFRA’s priorities written for the Vaccine Group? They might as well as been!
I spluttered into my Cornflakes when I read another commentator considered it was worth zero! But I’d agree it wasn’t mentioned in 24. Jack Bauer destroyed the virus another way in Series 3.
Other Exits
Cambridge Raman Imagining, CamGraphic and Nandi are all heading strongly towards an exit.
CRI announced strong growth with its tumour detection technology. This is an obvious candidate for a buy out - or pairing it with an AI diagnosis assistant and this would suddenly be a highly sought after IPO. Perhaps that’s the plan? After all this is mentioned in the 2024 report.
When Moores Law works no more
CamGraPhiC - like Pulsiv - is a way to play on vast trends too. Using Photonics to transmit data. Digital services have grown 25-fold since 2010 and has been growing at least 25% per year. And that was before the recent growth of AI. The IEA speaks to moderate growth in the use of energy by Data Centres because of improved efficiency.
How can further achievements be achieved? Camgraphic with its graphene transceivers can improve speed and reduce energy use by 70%. There is strong interest from the telecom and semiconductor sector. Exit coming?
Nandi
Nandi Proteins is backed by Nesta, a £400m charity created 20 years ago from two National Lottery grants.
Nesta campaigns vigorously against child poverty, health and energy transition. Its voice will be influential to a receptive Labour government eager to cure societal troubles through spending.
Interesting then that Nesta campaign to halve obesity. So its investment in Nandi is mirrored by pushing for taxes on sugar, salt, plus regulations to encourage better labelling and also that supermarkets would be forced to sell healthy foods. All positive for bacon and sausages with just half the far from Nandi.
There’s no new news around its global food ingredients customer agreement. But the need to halve obesity will need to be reduce by 2/3rds if current trends continue.
Portfolio
(As best as I can determine)
Conclusion
Holdings in this year’s annual report are broken into Stage 1-6.
It is telling that half of its holdings held at the value of the IP minus a risk factor (Stage 2) moved to funding/milestone based (Stage 4) in the year to June 2024.
A third of those entering commercialisation (Stage 3) progressed to Stage 4 too.
FIPP sold the remainder of Exscientia its only Stage 6 holding. Meanwhile commercial milestones increased its “Stage 4s” by 10%.
Debt holdings (typically these are convertible to equity or have warrants attached) fared less successfully. But remember reader, this isn’t what’s owed it’s the assessment of what’s collectible out of what’s owed. They are not the same thing. But we’ll consider the debt again in a little while.
The good (or bad) news post period is yesterday FIPP raised a £3.1m placing at 0% discount to the share price (28p) and announced a primary bid £1m participatory raise for Shareholders. Given that PrimaryBid withdrew their app and none of the brokers I use are listing FIPP’s secondary round I don’t think I’ll be participating. But if you get a chance here’s why you might want to.
This estimated 25/11/24 balance sheet includes the £3.1m placing. FIPP now has £5.4m plus receivables. It’s true that there is about 20% dilution, but the extra cash will prove useful for growth.
FIPP is on a discount to NAV of 61% post dilution. If you strip out cash and receivables then that discount is actually 73%. If you consider the debt positions FIPP holds in its holdings are fully collectible then the discount is actually 84%.
So what we are saying is £5.5m gets you £33m of equity investments (plus £2m goodwill).
Considered another way, £9.1m gets you £33m of equity investments and £3.6m of debt investments. Among those are 4 equity and 2 debt which a book of £24.4m which form “The Escape Committee”. These are the holdings most likely to exit the soonest and to generate commercial progress.
So we are also saying that you are getting the escapees at a 62.7% discount (£9.1m vs £24.4m). And the rest for free.
If Pulsiv alone sells for 10% less than its last funding round then you’ve made your money back. And the rest for free.
To find the holy grail, Indiana Jones needed to walk the Path of God where only the penitent man shall pass. The penitent man, the penitent man. Second, the Word of God: Only in the footsteps of God, shall he proceed. Third, is the Breath of God: Only in a leap from the lion's head, shall he prove his worth. Finally Indie needed to be humble and choose wisely.
Sounds like Indie and FIPPers walk a similar path, with faith.
Regards
The Oak Bloke.
Disclaimers:
This is not advice - make your own investment decisions.
Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"