FIPP-ing 'eck!
Is there low hanging fruit for the picking?
Dear reader
A reader asked last week in relation to an investment company I’d written about, when do you think they will sell holdings in the long run?
That’s a great question to ask since while NAV growth is good, cash results is better. A bird in the hand worth two in the bush as any hungry hunter will attest. Such is the case for Frontier IP who sold the last of their ExScientia holding in Feb 2024, so net proceeds of £14m cash from an investment they made of less than £2,000.
Is a 7000 bagger a record? I’m not sure. At least for AIM it probably is, I do know someone once told me that if you’d invested £10 in Sage you’d be a millionaire today. Given Sage’s further rise in the past two years a multi-millionaire.
Did they make the right decision? ExScientia is heavily involved in drug discovery. It could strike a jackpot for its Pharma Major clientele.
But discipline is good. What struck me about FIPP, as I researched it, was their P&L from 2019 - 2022.
Earnings per share 5.8p →8.8p → 17.5p → 18.6p →(1H23) 2.6p. That’s a great track record! Doubling so, that it did it without major dilution, driving the NAV per share up year after year.
So how is it on a 55% discount to NAV? Or 59.8% stripping out cash.
Was the ExScientia a one-off?
Let’s look at the Valuations of the portfolio. Ah…… we can’t. This is the tricky bit. FIPP publish the ownership percentage held of each holding but not its valuation except in aggregate. Grrr.
However through some sleuthing, I’ve managed to piece together 3/4 of the Net Assets, based on different clues leaving 25% of the portfolio as “unknown”.
Apart from £4.3m of cash/current assets (in a £21.5m mar cap) let’s chat about some of the key holdings in FIPP’s stable, and why I believe there’s a clutch of businesses on the cusp of commercialisation.
Tiles:
Did you know that 32KWH of energy is used per square metre of tiles manufactured? Retiling an average bathroom could account for 0.5GWH of energy. That’s about 20% of the annual electricity of an average home. Europe wide 19m tonnes of CO2 is generated by production of ceramics.
Alusid is seeking to change that. Alusid’s innovative formulations and processes create beautiful, premium-quality tiles, tabletops and architectural surfaces by recycling industrial waste ceramics, glass and other materials, much of which would otherwise go to landfill.
They’ve been selling them through Topps’ “Prestige” range over the past year (there’s a sale of and you can even get 15% off reader, if those blue tiles float your boat)
You’d be joining others with impeccable tastes - Harrods, Starbucks, H&M, StoneHenge Visitors Centre, Nando’s, Selfridges, Amazon UK and Pret-a-Manger are all customers of Alucid.
Alusid’s latest accounts speak to 260% sales growth, and their web site speaks to capacity to make 1k m2 per day. At £85/Sq.M RRP, equates to £21m of tiles per annum. Minus trade discount to Topps then Alusid are turning over £10m+ perhaps? Octopus invested £1.13m into them in December and they are planning an IPO, later in 2024 as well as expansion into Europe.
Deakin
A 2nd Tile portfolio company has just joined the ranks: Deakin. It makes tiles too. From Chickpea broth! 94% lower CO2, recycled content 95%, Deakin says it “learns from natural materials such as spider silk, tooth enamel and pearl”, to produce biopolymer-mineral hybrid materials quickly and efficiently.
Sounds like the ingredients of a Witches Cauldron.
They also claim to have made concrete which is twice as strong as regular concrete. Twice as strong could mean half as much concrete. Is that a game changer in itself? Wouldn’t that halve emissions?
Antibiotics vs Superbug Immunity
FIPP has a 10% holding in Amprologix cream containing epidermicin, one of the new antibiotics being developed to combat infections caused by antibiotic-resistant bacteria. Epidermicin can rapidly kill harmful bacteria including MRSA (methicillin resistant Staphylococcus aureus), Streptococcus and Enterococcus at very low doses, even if they are resistant to other antibiotics. Ingenza, a leader in industrial biotechnology and synthetic biology, is also a shareholder and is working with Amprologix to develop and scale up the technology. The danger from antimicrobial resistance is a top 10 threat to global health according to the World Health Organisation. It’s the plotline of “The Last of Us” even if Bacteria possessing and turning humans to raging zombies is fanciful, the truth is the world needs new antibiotics.
What if it’s a Virus and Not Bacteria?
Then let’s talk about The Vaccine Group
TVG is developing 12 animal vaccines, which cost farming billions even hundreds of billions. Its vaccines also have the potential to address future pandemics. It recently took on advisors from Merck and Pfizer Animal Health. IPO? Trade Sale? Take your pick.
Hot Plugs
Have you ever noticed how your phone charger is warm? Or that many electrical plugs are warm. Well reader, warm and all that heat is wasted electrical power. The waste is spectacular. A pal of mine works in energy efficiency (is a PhD) and he bemoans the waste.
Well I told him about Pulsiv.
Pulsiv offers major improvements in the efficiency with which electricity is converted – by reducing wasted energy from about 50% to 5% – the technology could significantly reduce the strain on national power grids if adopted at a great enough scale.
Estimates are 5.5TWH year are consumed powering smart phones. At wholesale prices that’s £300m of electricity. At retail prices £2bn. The world could save nearly a £1bn a year just by switching to a Pulsiv charger…. let alone using Pulsiv for anything else.
Pulsiv’s components are cost effective, can be fitted into smaller, lighter form factors, and can be used in a wide range of devices. It’s just gone to market with a 65w phone charger in collaboration with a Chinese electronics giant.
Its valuation in 2021 was £21.8m a year later doubled to £50m. FIPP own 18.2% of Pulsiv, and £50m, for a 10X reduction in waste use sounds good value.
Its strategic partners agree. It has commenced distribution agreements with Astute Electronics, Digikey Electronics, the (world's fifth largest electronic components distributor), ISMOsys and Pankaj Electronics. Pulsiv, also entered a collaboration with U.S. based Salom, a major manufacturer of power supplies whose customers include Dyson, Lenovo, Motorola, Panasonic and Philips. Market research house ReportLinker estimates that the micro inverter electronics market, which Pulsiv addresses, has a market size which is expected to reach US$7.4 billion by 2028, rising at a market growth of 17.8% CAGR from 2022.
CamGraPhIC
Another energy saver is CamGraPhIC.
It's graphene-based photonics are able to transmit digital data and communications more rapidly and use at least 70 per cent less energy than any competitor can.
Its use for I/O interconnectivity for AI/ML processing systems and for 5G comms means it plays into the ESG story and AI story.
It raised £1.3m to complete the fabrication and testing of devices deploying its graphene-based photonics technology for high-speed data transmission.
After that it will be taking orders.
Nandi
Nandi Proteins’ ingredients replace chemical E-numbers, fat and gluten in a wide range of processed foods, including meat replacements. Nandi Proteins is also striding forwards in terms of commercial development and scale up. The company signed heads of terms with a commercial partner for a meat/fat replacement product during the period, and successfully manufactured a fava bean based egg-white replacer on commercial production equipment in trials with a subcontractor. The egg-white replacer is now at an advanced stage of application trials with a potential customer, a major company in the meat alternative sector.
Is the unnamed “commercial partner” not Kerry Foods? Nandi’s CEO is ex-Kerry Foods and Kerry Foods have a egg replacement product called Hyfoama - that looks like it is “powered by Nandi”? If that’s true that’s massive.
Kerry Foods announced Euro8bn revenue in 2023 from its global footprint.
Celerum:
Celerum’s Artificial Intelligence software also saves energy. It improves the logistical efficiency, fuel consumption and carbon emitted by pooling truck fleets and deliveries particularly in the food and drink space. Rather than operating separate logistics pooling these saves money and benefits participants. You’ve got a half empty truck and I’ve got a delivery to make. It is working with businesses in the Highlands (Skye and Inverness)
Celerum is commercially selling its truck logistics system which provides significant efficiencies including reduced fuel and emissions, but also partnering with PlanSea Solutions Ltd to provide maritime planning and sharing software to the North Sea offshore industry and working with the Highlands & Islands Innovation Network on a new open logistics platform.
Plansea reckons UK marine logistics spend is £250m a year and they can cut that by 40%.
Plugging and oil/gas well retirement is a big issue in the North Sea. £2bn a year as I covered in my Plexus article POS-itivity. Plansea reckon they can cut the cost of decommissioning through their software.
Fieldwork Robotics
Fieldwork Robotics now has machines operating commercially to harvest raspberries in Portugal, a boost to horticultural productivity. It has developed advanced AI-supported harvesting robots, initially focused on soft fruits, such as raspberries, to help solve the problem of worker shortages, increase farm efficiency and reduce food wastage.
Its customer Summer Berry says:
“Our raspberry fields in Portugal have been a privileged training centre for Fieldwork Robotics since 2021, when the first prototype started working on the harvesting and forecasting of raspberries. Since that day a lot of machine learning was developed and, consequently, many improvements have been achieved. Now, robots can easily identify ready to pick raspberries whilst being programmed to ignore fruit that is still not ready for harvesting.
Robots walk across our polytunnels autonomously, collecting information that can help our agronomists with forecasting and with the identification of potential diseased plants. They can also be using for spraying; the kind of job that, when done by humans, may pose health and safety concerns.”
Robots are in commercial use on farms generating revenues for HaaS (Harvesting as a Service); it is full funded to expand and is aiming to scale from 2 to 100 robots by next year. Because these robots operate 24 hours (24x365) they do the work of about 5 humans so £70k per year per robot revenues is realistic x 100 is a £7m a year business where the operating costs are relatively low and it’s got plenty of room to scale.
Cambridge Raman Imaging
This is a spectroscope using graphene-based ultrafast lasers and AI to enable much faster imaging - used to diagnose and monitor tumours and other diseases.
Coherent Raman scattering spectroscopy requires synchronised tunable picosecond lasers. Such systems are typically bulky, expensive and require tuning by an expert operator. But not this device. CRI has developed a patented laser geometry, combined with the unique properties of graphene/carbon nanotubes, enables an ultrafast and inherently synchronized fiber laser that is compact, low-cost, and alignment-free.
The use of ultrafast fibre lasers which are compact and do not require daily recalibration makes our technology ideal for use in biomedical applications, especially in clinical settings where fast and accurate imaging is critical for timely and effective disease diagnosis.
It is already commercially selling a device called a STRALE (STimulated RAman LasEr)
AquaInSilico:
AquaInSilico is developing software to improve wastewater treatment across a range of industries, recovering more valuable resources, such as phosphorus, while making water quality better. It is part of a United Nations Development Programme Ocean Innovation Challenge in Cape Verde.
Molendotech
Molendotech’s unique testing kits are able to test water for harmful bacteria in a matter of minutes on site compared to the days currently taken.
Conclusion
Stripping out the cash, the £17m remaining covers the book value of Alucid (Tiles) and Pulsiv (5% electricity waste) and Nandi Proteins (egg white replacement). All of which have large partnerships, which should uplift their value - potentially substantially.
Each have a large addressable market - and a key USP. ESG-friendly tiles, energy-saving power, dairy-free egg protein. Needless to say each holding has IP, Patents and Know How.
If the top 3 have a book value at least equal to the market cap ex cash, the other 15 holdings are in the price for free. But are they worth nothing? At least four others are already with commercialised offerings too; a fifth could be snapped up:
FieldWork Robots are whirring away….. Celerum logistics software for land and sea… Cambridge Raman selling their STraLE cancer detectors… CamGRaPHic selling 5G gear.
And The Vaccine Group looking extremely pregnant with 12 animal vaccines.
While a few are early stage and a few appear to have no newsflow for several years, they all appear to be a shrewd play on a real world problem. FIPP appears to have at least 7 holdings generating commercial revenues and potentially growing fast from here.
Plus I’d point out there’s £12m unaccounted for in the NAV. In other words one or more of these holdings are ALREADY worth £12m more than I can give them credit for. If I had to guess I’d say Alusid, Pulsiv, Nandi and Fieldwork Robotics are where most of that £12m is. But, reader, I do not know that for sure.
What I do know is FIPP have a great track record, and it is certainly an interesting set of holdings that could be worth a closer look.
Regards,
The Oak Bloke
Disclaimers:
This is not advice
Micro cap and Nano cap holdings including those held within an investment company might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip".