GROW-ing opportunity
More good news from Molten
Dear reader,
Molten Ventures plc (LSE: GROW) notes the announcement released by Hologic, Inc. (Nasdaq: HOLX), a global leader in women's health, that it is has signed a definitive agreement to acquire Endomagnetics Ltd. ('Endomag').
The acquisition, which is subject to regulatory approval as well as working capital and other customary closing adjustments values Endomag at approximately $310m.
Endomag is a medical technology company, based in Cambridge, devoted to improving the global standard of care in breast cancer. Its products include the Magseed® marker for magnetic tissue localisation before surgery, the Magtrace® lymphatic tracing injectable for breast cancer staging and the Sentimag® platform, which supports both localisation and lymphatic tracing.
Molten first invested in Endomag in July 2018, with investment from its balance sheet and from its EIS and VCT funds. Follow-on funding was provided to support Endomag's continued growth in 2020. The deal values Molten's stake in Endomag modestly above its Group holding value of £35 million.
In its recent trading update, published 23 April 2024, Molten noted that FY25 was showing promise of a more normalised realisations market, with proceeds expected to be meaningfully higher than the prior two years.
Martin Davis, Chief Executive Officer of Molten Ventures, commented:
"This transaction, alongside Perkbox, demonstrates our ability to support innovative businesses as they scale and create value for our shareholders through the cycle.
"The news follows our recent announcement in relation to Perkbox, and reflects the additional momentum being seen in the realisations market. With multiple realisation processes either underway or planned across the portfolio we expect to deliver in the region of £100 million of capital back to the balance sheet this financial year.
"We will provide an update on our capital allocation policy in respect of these anticipated proceeds, which focuses on NAV per share accretive deployment, at the time of our full year results on 12 June 2024."
What the Endomag deal means
We know from the interims that ownership is a “C” which means it is an 11% - 15% ownership holding for Molten. Assuming the maximum of 15% the $310m sale price means 15% is $46.5m which is £37.2m.
£37.2m is £2.5m above the £34.7m valuation so is “Modestly Above”.
The key point though is GROW is discounted severely against its NAV but yet again a a realisation is being made above NAV.
Shares jumped on the news, but I believe there’s plenty more to follow.
Further gain of £10m?
In GROW green shoots I set out how I estimated the NAV to be £1,277.5m. The trading update revealed the gross portfolio value is circa £1,377m. The RCF is undrawn, but there is a £90m loan, so after deducting this, it appears there’s a further £10m gain at 31/3/24.
It’s a small gain, but it stems the write downs which have been the hallmark of the past 18 months at GROW.
Forward Portfolio growth
Other elements which caught my eye is growth in the NAV is masked by adverse FX movements. Particularly, that the Forward Partners acquisition and Seedcamp III led to a £55m uplift.
Now Seedcamp III is a 19% of the fund for €8.5m while Forward’s NAV was £90.5m so sharing the uplift pro rata we are seeing a more than 50% uplift in valuation.
Portfolio revenue growth
It is also impressive to note 63% revenue growth across the portfolio, 90% of core with more than 12 months runway, and 50% more than 24 months.
Also the expectations that realisations in FY2025 (1st April 2024 onwards) will be much higher (Circa £100m vs £39m in FY24.)
On top of nearly £200m firepower another £100m in the year ahead will provide further firepower to support the portfolio as well as - I hope - buy backs. I await 12th June with interest.
Even with a recent 20% share price rise this remains at a severe discount of around 60% to NAV, where the NAV is itself discounted by 33% (Molten’s self flagellation)
Final thought: I’ve mused for a while that GROW holding Graphcore will be divested soon. Bloomberg announce that Softbank are in talks to acquire Graphcore.
Regards,
The Oak Bloke
This is not advice.
Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip".