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Frontier IP Group PLC firing on all cylinders

The investment group, which is focused on the commercialisation of intellectual property developed by universities, saw a quadrupling of revenues as it swung decisively into the black.

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Bright future: The firm is invested in a solar energy business.

Frontier IP Group PLC (LON:FIPP) appears to be firing on all cylinders, based on its first half performance.

For the investment group, which is focused on the commercialisation of intellectual property developed by universities, saw a quadrupling of revenues as it swung decisively into the black.

The top line grew to £992,000 in the six months to December 31 from £244,000 a year earlier, while pretax profits were £549,000. The value of its portfolio of stakes in start-up businesses grew 31% in the period to £3.75mln.

The performance put it Frontier on course to at least match, but more likely beat analysts’ earnings expectations for the full-year.

THE COMPANY

Led by chief executive Neil Crabb, the company isn’t simply an incubator.

It provides a broad base of expertise from the practical – accountancy, capital markets and operations – to the knowledge and experience that comes with having helped found and run a major PLC.  

Very simply, Frontier can act as the commercial cocoon around the intellectual property being spun out of universities and their inventors. In all its portfolio includes spinouts from six of our seats of higher learning including Cambridge, Plymouth and Dundee.

It trades its expertise for stakes in the university spin outs. At last count there were 17 companies in its portfolio; however, it recently narrowed down its focus to a core portfolio of six where the average stake size is 29%.

They include PulsiV Solar, out of Plymouth University, which has come up with a technology that improves the energy generation of photovoltaic panels, and there’s Nandi Proteins, which could revolutionise food production with ingredients developed at Heriot Watt.

In the traditional model, the intellectual property company would make a direct financial investment that gives a fairly accurate valuation of its stake in the business.

Frontier is a little different. Because it has bartered its own services for a share of the company it is included on the balance sheet at a nominal value - sometimes just tens of thousands of pounds.

CREATING VALUE

The uplift comes when the investee company receives funding, which precipitates a revaluation.

That happened recently when Nandi raised a further round of cash at level that valued the fledgling business at £7.6mln.

This in turn saw doubling in the worth of Frontier’s stake 20.8% holding.  

There are two things to note here. The first is the portfolio is potentially worth many times the carrying value on the balance sheet.

It also means that periodically there is an uplift in value that then feeds through to allow Frontier to book a profit on its investment. The second half of the year could potential see a number of these ‘value events’.

Returning to the results, update revealed the company was sitting on £264,000 of cash at the end of December. It earned £109,000 for charging out it services.

Commenting on the figures, chairman Andrew Richmond said progress over the period had been “excellent”.

“We have been successful in securing investment in our portfolio with the completion of fundraisings in PulsiV Solar and Nandi Proteins and look forward to seeing further progress within the portfolio,” he added.

“In line with our aim to extend our sources of exploitable IP, we were pleased to announce our agreement with Évora University in Portugal in January this year, our first relationship to be established by the group with a university outside of the UK.  We remain encouraged by the opportunities for growth in our portfolio."

WHAT THE BOSS SAID

In an interview with Proactive’s Charlotte Kan, chief executive Neil Crabb said…

Cash Balance

We expect to come back and raise further funds in the current period to support the growth we’re seeing strong opportunities. We’re seeing strong opportunities within both the portfolio and outside of that.

Expansion

We would expect to be expanding the core UK portfolio and we’re working on a number of opportunities here. We also signed our first international collaboration with the university in Portugal, Évora. That’s an interesting marketplace for us.
Outlook

We are well on track to match or exceed market expectations.

Frontier’s first IPO?

Realistically we are probably talking a 12 to 18 month timescale for the first IPO event, assuming the current companies stay on track.

WHAT THE BROKER SAYS

Cantor Fitzgerald - We continue to see significant valuation uplift potential in the near- to medium-term from a number of maturing portfolio companies.

THE SHARE PRICE

They were up 1% in morning trade at 20.95p; Cantor reckons the stock is worth 34p.

Quick facts: Frontier IP Group PLC

Price: 62.5 GBX

AIM:FIPP
Market: AIM
Market Cap: £34.38 m
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Frontier IP Group PLC chief sees first investee IPO by the end of 2017

Neil Crabb, chief executive of Frontier IP Group PLC (LON:FIPP) says a number of its investee companies “are beginning to see significant commercial traction now.” In terms of an upcoming IPO for any of its investee firms, he says: “There are a number of companies in the portfolio...

on 03/09/2016

4 min read