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The good news is that last month’s successful flotation of Oxford Nanopore is a further affirmation of the strength of IP Group’s business model.
The less good news is last week’s decision by the chief executive, Alan Aubrey, and chief investment officer, Mike Townend, to retire and step down from the board with immediate effect, which has shaken confidence and weighed on the shares. The sudden sell-off at least leaves the stock trading at a discount to net asset value.
That is enough to keep this column interested, especially as the new board is quickly stepping in with a £35m share buyback.
Oxford Nanopore is the third “unicorn”, or business with a $1bn-plus valuation, to emerge from IP Group’s investment portfolio after Ceres Power and Hinge Health. IP Group sold a portion of its holding in Oxford Nanopore to leave it with a 10.3pc stake in the genetic sequencing specialist and an £84m profit.
At the end of the first half of its financial year in June, IP Group had net assets of £1.4bn, or 135p a share. At that time it had a 14.5pc stake in Oxford Nanopore with a book value of £359m.
It has now bagged the capital gain and seen Oxford Nanopore’s shares race from the 425p flotation price to around 600p, a level that gives IP Group’s remaining stake a market value of more than £500m. That in turn represents an increase in the book value of the Oxford Nanopore stake of around 15p to 16p per IP Group share.
Granted, the other portfolio holdings will not be static when it comes to their valuations but all things being equal this does suggest there may be some near-term increase to that 135p NAV per share figure.
Management’s plan to buy back stock at a discount therefore appears to make perfect sense and this process also increases the stake owned by any holders who do not sell stock. That in turn increases their percentage claims on the assets and cash flow of the firm.
Moreover, further growth in NAV is possible, especially if the other portfolio holdings develop as planned. IP Group owns stakes in more than 120 companies, predominantly in Britain but also in America, Australia and New Zealand, as it works to incubate and commercially develop their intellectual property.
Having first studied IP Group when the shares were trading at a 50pc-plus discount to NAV, in the wake of Neil Woodford’s fire sale of a 13pc stake, we are sitting on a tidy book profit.
Those investors who are nervous about the executive changes have the option to sell a few shares and cover their initial investment, leaving themselves with the potential offered by existing holdings in already quoted firms such as Diurnal and Mirriad Advertising and stakes in the privately held Istesso, Featurespace and Hinge Health, among others.
That trio represent the most valuable holdings after Oxford Nanopore, while San Francisco-based joint pain specialist Hinge Health is talking about a 2022 flotation of its own, a further possible catalyst for IP Group’s shares.
The departing executives were clearly held in high regard, but IP Group’s portfolio is still packed with potential. Hold.
Questor says: hold
Share price at close: 123.4p
This column’s quest for undervalued assets has paid off with bids for Sky, Cobham, St Modwen Properties and William Hill, among others, and now Gamesys joins that list as we more than double our money on the online gaming specialist first assessed by this column four years ago.
The bid from America’s Bally’s Corporation has become effective. Shareholders will receive £18.50 a share in cash no later than Thursday from the buyer (although they did have the option to take a mixture of cash and stock).
In addition, on Oct 1 Gamesys paid a second interim dividend worth 15p a share to those investors who were on the share register on Sept 15. That took our total in dividends from the firm, formerly known as JackpotJoy and JPJ, to 55p, further topping up our total returns. A pleasing outcome.
Russ Mould is investment director at AJ Bell, the stockbroker
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