TRENDLINES GROUP: Stock idea (with P/B discount)

Alice Leung, an analyst from KGI Fraser (Hong Kong), attended the AgriVest 2016 conference in Israel (as we did, last month), and filed a report on The Trendlines Group on 27 Oct. 

Trendlines co-chairman Steve Rhodes speaking with Singapore and HK visitors during a break in the AgriVest conference. KGI analyst Alice Leung is in the photo (back to camera).
NextInsight file photo
Excerpts from KGI Fraser report: 

The Trendlines Group invests in and incubates innovation-based medical and agricultural technology companies.  

The company’s business focus is to create and develop medical and agricultural technology companies for valuation appreciation. The company’s investment period is about six years or less and with low capital requirement to exit, cutting down their initial stake of 50-60% to 20-30%. Trendlines, unlike venture capital companies that charge management fees and gain interest from performance, earnings rely on the realization of investment. For this reason, in the early stage of development, the company has been operating with negative cash flow. However, with the addition of new companies and as existing investment matures, portfolio valuations should become less volatile. The company was listed on the Singapore Exchange in November 2015.

On average, Trendlines invests about US$1.15mn in each project in Israel, with US$0.6mn from an Israeli government grant, US$0.55mn of their own capital, US$0.45mn being in-kind investment and US$0.105mn in cash. Overall, max total capital outlay is US$5.0mn and Trendlines always identifies market potential from the start. During the investment period, it offers a range of supporting services, covering technology, business relationships and development, commercialization strategy, financial and marketing. Exits are by way of M&As, IPO listing and/or share disposal. Trendlines also has an internal innovation center for R&D for corporations and partners.

Core strengths

Consistent deal flow – A seasoned management team has extensive network with entrepreneurs, inventors, venture capitalists and other practitioners, acting as industry event organizer also offer the exposure.

Strategic partnership – Bayer AG invested US$10mn to form an innovation fund to identify deals in agricultural innovation with Trendlines. Braun, a global health-care company invested US$5.0mn in Trendlines IPO. Trendlines raised around US$25mn from 2007-14 with higher valuation at recent equity round in June 2015 and raised another US$1.5mn.

Currently, most of Trendlines’ peers are trading at 1.2-1.9x against its valuation of 0.8x. It is relatively undervalued. (See table of comparison with peers listed in London)

Related story: TRENDLINES GROUP: Takeaways from Sept 16 visit to Israel