Excerpts from NRA Capital's 46-page report

Analyst: Liu Jinshu

Turning Small Companies into Big Blockbusters 

▪ Value emerges at current levels. We see opportunity for investors to accumulate Trendlines at its current share price of S$0.143 – 2% premium from the recent private placement price of S$0.1403 to various institutional names. 

Excluding the Most Valuable Portfolio Company (MVPC), Trendlines has valued the remaining 44 companies at an average of US$1.1m each.

Trendlines

Share price: 
16 c

Fair value: 
22.5 c

Our review yielded 11 high confidence Portfolio Companies and derived a higher valuation of US$139m for Trendlines’ portfolio or S$0.225 per share. 

Currently, Trendlines trades at about 0.7x P/BV and 10.3x FY18 P/E, suggesting that the full upside of potential exits has not been priced in.

 
Hiding gems in its portfolio. The 11 high confidence Portfolio Companies have been found to be either prospective exits or of high growth potential.

ApiFix system1.16ApiFix's minimally invasive solution for fixing curved spines.
NextInsight file photo
ApiFix’s peers in the orthopaedic industry were acquired at valuations of US$212m to US$410m during the last two years. 



Michael Zilbershlag9.16CEO of Leviticus Cardio, Michael Zilbershlag, and a photo of his company's LVAD system being applied in a pig during a trial. NextInsight file photoLeviticus Cardio is in a race to make the world’s first wireless left ventricular assist device. 
With major LVAD makers being acquired for billions of dollars in 2015 and 2016, the price tag for Leviticus is likely to be steep. 

Two of them have already been taken up, i.e. the MVPC and Vensica. Most of them have potential to be exited at valuations of more than US$100m, based on transactions at comparable companies.

E.g. Portfolio Company ApiFix’s peers in the orthopaedic industry were acquired at valuations of US$212m to US$410m during the last two years.

Upside emerges upon closer look. Some of these companies are riding on broader trends that are not obvious at first. E.g. Leviticus Cardio is in a race to make the world’s first wireless left ventricular assist device.

With major LVAD makers being acquired for billions of dollars in 2015 and 2016, the price tag for Leviticus is likely to be steep.

Over in the Agtech unit, BioFishency is enjoying growing sales driven by high growth in commercial fish farming as open sea fish stocks decline.

Established processes to build successful companies. Overall, Trendlines’ track record is impressive, with a success rate of more than 20%. We attribute the high success rate to Trendlines’ relationships with key opinion leaders and partnerships with established players in the industry.

These relationships in turn provide valuable feedback to help Trendlines identify industry needs, select/form the right Portfolio Companies and rapidly commercialize them by leveraging on partners’ resources

▪ Potential exits and cost cuts brighten FY18 outlook. Looking ahead, Trendlines will sell its stake in Vensica upon successful clinical trials in 2018.

liujinshu2.17Liu Jinshu, analyst, NRA Capital.Other potential exits include ApiFix, Leviticus, and Gordian Surgical where B. Braun has taken a stake. 


The group has undertaken to reduce expenses by about US$1.3m in FY18. We expect Trendlines to report FY17 PATMI of US$5.3m in FY17, followed by growth of 18% to US$6.3m in FY18. 

Trendlines will likely remain profitable in 4Q17; albeit at a slower pace as the 3Q17 results were elevated by substantial new funding which raised valuations. 

Based on the balance of evidence, we rate Trendlines Overweight with a high-average return and average risk view.

 
NRA Capital's full report here.


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