Excerpts from analyst's report
DBS Vickers analyst: Sachin Mittal
|Decent portfolio growth masked by poor earnings
Leading Technology incubator in Israel. Trendlines (TTGL) is a seed-stage investor in medical device developers and agriculture technology start-ups. Increasing ageing population and growing demand for sophisticated medical devices will spur investments in medical device developers. Rising global demand for food and clean water will help attract funds for Agtech. TTGL intends to expand its business to Singapore, Germany and China in FY16.
Growth in FY15 book value was largely in line with our estimates. Fair value (FV) of investments in portfolio companies increased 12% y-o-y to US$84.5m versus our US$86.5m estimate. This came from incorporation of five new portfolio companies in FY15 and gains in FVs of 15 portfolio companies partially offset by declines in FV of 18 portfolio companies. However, bottom line was hit by one-off non-cash expense from conversion of Redeemable Convertible Bonds (RCL) into the shares at the IPO. Excluding this one-off expense, Trendlines would have reported a net profit of US$2m.
"Valuation: Based on FY16F P/BV of 1.1x (versus selected peers trading at 1.3x) and an estimated book value per share of S$0.25 in FY16F, we estimate a one-year target price of S$0.28."
-- Sachin Mittal (right, speaking with Trendlines Co-Chairman Steve Rhodes). NextInsight file photo
Three portfolio companies have engaged investment banks to explore M&A option. We expect TTGL to successfully exit from one of the three portfolio companies in FY16F. In the past, TTGL has exited at 3x-67x the book value of the portfolio companies.
We forecast a CAGR of 16% in the portfolio value over FY15-17F versus 18% average over FY11-14. With net cash of US$19m, TTGL can operate for another two years even if TTGL is not able to exit from any of its investments.
Key Risks to Our View: Failure to exit from existing investments may lead to negative cash flow and losses hurting its book value. TTGL operates in a high risk-high reward technology startups space and writedowns of portfolio value can not be ruled out.
Full report here.