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IP Group shares offer significant upside at a bargain-basement price
Are you looking for the next big thing? Rather than risk all your money on a single stock, intellectual property investor IP Group (IPO) will give you exposure to a portfolio of promising companies, each with a bright idea and the potential to make big money in the future.
Not everything will be a success in its portfolio, but it only needs a handful of winners each year to make shareholders happy.
One of its investments is Oxford Nanopore Technologies (ONT) which saw its share price jump by 45% upon joining the stock market last year. The Oxford University spin-off specialises in DNA-sequencing and provides rapid Covid-19 testing to the NHS.
There are plenty more exciting companies in IP Group’s stable and now is a great time to buy its shares, as we now explain.
DECADES OF EXPERIENCE
IP Group began life in 2000 when it took ownership of a joint venture between stockbroking firm Beeson Gregory and the chemistry department of the University of Oxford.
After signing more technical agreements with the universities of Leeds, Southampton and King’s College in London, the firm floated on AIM in late 2003.
By 2010, several of the group’s university spin-offs were themselves listed on AIM, including Avacta (AVCT:AIM), GETECH (GTC:AIM), Ilika (IKA:AIM), Oxford Catalysts (now known as Velocys (VLS:AIM)), Synairgen (SNG:AIM), Tissue Regenix (TRX:AIM) and Tracsis (TRCS:AIM).
Every few years IP Group raised more capital to invest alongside the profits it booked each time one of its holdings was listed on a stock market or taken over.
IP Group also acquired Fusion IP, Parkwalk Advisors and Touchstone Innovations to broaden its range of investments and add depth to its management.
With its proven track record of supporting and growing innovative businesses and a market cap approaching £1 billion, IP Group is now a stalwart of the FTSE 250 Index.
Last week, two of its lesser-known holdings hit the news. Coatings firm Applied Graphene Materials (AGM:AIM) posted results and revealed several new potential growth areas for its products.
Meanwhile, portfolio company First Light Fusion announced it had achieved the world’s first nuclear fusion result with ‘projectile fusion’, paving the way for a faster, cheaper way to fusion energy.
The result, which was verified by the UK Atomic Energy Authority, was the culmination of just £45 million of research spending, which is a drop in the ocean compared with the amounts spent by the nuclear industry.
Third party valuations suggest at its next funding round First Light Fusion could be worth between two and four times its current valuation, meaning an uplift to IP Group’s net asset value of between 5p and 10p per share.
Analysts at Numis describe First Light Fusion as ‘a future growth driver’ for IP Group, comparable to Oxford Nanopore and Ceres Power (CWR:AIM).
SHARES GOING CHEAP
In its results for 2021, IP Group posted a jump of 142% in net profits to £449 million and a 30% increase in net asset value to £1.74 billion.
The total portfolio value increased 27% to £1.5 billion and there were net portfolio gains of almost £500 million against £231 million the previous year including £84 million from the flotation of Oxford Nanopore.
Net asset value per share as of 31 December was 167p per share against 125p, and the firm had a net cash position of £270 million or more than a quarter of its market value.
Adjusting for the net cash, IP Group currently trades on less than 0.4 times the value of the underlying businesses, which given the long-term growth potential seems absurdly cheap.
Some of the names in IP Group’s portfolio
First Light Fusion
Nuclear fusion is the holy grail of energy production. Instead of using complex and expensive lasers or magnets to generate or maintain the conditions for fusion, First Light Fusion’s approach compresses the fuel inside a target using a projectile travelling at tremendous speed.
The key technology is the target design, which focuses the energy of the projectile, imploding the fuel to the temperatures and densities needed to make fusion happen.
The company is working towards a pilot plant producing around 150 megawatts of electricity and costing less than $1 billion in the 2030s.
Ceres Power (CWR:AIM)
Ceres Power makes advanced solid oxide fuel cells which can power everything from a family home to an office building or a data centre at low cost and with low emissions. Its products are cost-effective, robust and scalable.
For now, its fuel cells use natural gas, but they can run equally well on biogas or hydrogen. It also makes fuel cells as range extenders for electric vehicles.
The firm has partnerships with global engineering groups in Europe and Asia and licences its fuel cell technology around the world.
Applied Graphene Materials (AGM:AIM)
Graphene is a ‘wonder material’ made of one atom-thick sheets of carbon arranged in a honeycomb pattern. It is completely transparent and is the thinnest and lightest material known to science.
It is 100 times stronger than steel, is a better conductor of electricity than copper, is five times better at conducting heat than aluminium and is impermeable.
Its commercial value lies in the ability to transfer these properties into other materials, so enhancing their value. Applied Graphene Materials’ advantage is in the supply of graphene dispersions that are safe for its customers to handle and easy to incorporate.