As an alternative to investing in a single company, I, like others, find it can be highly worthwhile taking a look at Investment Trusts or Investment Funds.
The beauty of such investments is that they invariably spread the risk by concentrating on a whole array of quoted or unquoted companies, along with in many cases providing some chunky dividends for investors.
Most recently I have returned to this area, although the company in question, isn't quite in that mould as it is one that is very much focused on the area of early stage and evolving businesses, built on the back of novel and disruptive technologies.
This sees it effectively getting in on the ground so to speak, soon after a specific technology has been conceived and invariably being spun out of a specific University, which results in the company in question acquiring an initial stake.
Frontier IP (FIPP) is the stock that I have homed in on, which at the current price of 68.5p sees it standing with what appears to be a modest market cap of £38m, particularly given that a number of its investments have significantly matured and now look to be at inflexion points.
Additionally, it currently trades at a significant discount to the most recently stated net asset value of circa 88p.Having recently bought shares in a couple of lots, I was fortunate enough last week to speak directly with the CEO and co-founder of FIPP Neil Crabb, which in turn was followed up by my also chatting with the CEO of Pulsiv, which is just one of its exciting investments.
FIPP itself was spun out of quoted investment business in the form of Sigma Capital and is very much focused on delivering on a journey that commenced some years back which could now prove rewarding for investors, as the company begins to enjoy significant traction across its portfolio.
Crabb, a former investment manager, is highly experienced and has assembled a strong team at FIPP, which in turn has assisted companies where it is invested by supporting, advising and strengthening their own respective board of Directors.
Speaking of the early days, the CEO says that Sigma was focused on both property and technology which didn’t really make for great bed fellows.
As a result, he felt that there was a very real chance to focus on the technology aspect, tapping into opportunities that would be focused on actively assisting with operations and a hands- on approach, as opposed to merely making the investment. “We were very small when we started out,” says Crabb, “but we had aspirations, where we knew what we wanted to do and also had the institutions willing to back us”.
And looking at the list of major shareholders there are some impressive names that appear, with Quilter (formerly Old Mutual) Canaccord, Octopus, Axa and Miton all on board with notable holdings.
In terms of where it is at now, FIPP currently has in excess of seventeen investments across its portfolio and importantly, has more recently enjoyed its first successful exit, which has seen it realise a significant £10m with around £5m at current value left in the form of shares.
This came about via the IPO of drug discovery company Exscientia, which floated on Nasdaq in 2021 with a $2.9bn market valuation. Although FIPP was only sitting on a small holding in the bigger picture, it nevertheless demonstrates the ability of the team to back a winner and ultimately execute. “Exscientia shares have been all over the place, particularly with market volatility, but we sold some at a good price of $19.00, others below that and going forward we will look to sell on a measured basis” says the CEO.
With a proven success under its belt, the ambition now is to replicate that going forward, where a key element of the strategy and model is to acquire an early stake in an identified prospect at nil cost, which is achieved by providing support and know how to the subject.
Regarding technology and potential opportunities Crabb says, “Academics are very good at what they do, but don’t necessarily want to run a commercial business, or actually know how best to do it."
This is where FIPP comes in, as the CEO continues, “as we have grown we have become more focused on what we are doing and choosing what we do and don’t want to do, selecting areas where we can build an advantage."
This sees the company concentrating on specific themes, then once identifying a suitable subject and acquiring an interest, subsequently providing operational experience amongst others, in order to lay the groundwork for the goal of commercialisation.
The CEO says that the journey can be a long one from the foundation of a potential novel and disruptive product to the breakthrough into commercialisation, although paying nil at that very early stage, can reap the longer- term rewards.
In terms of its investments there is a strong focus on spin-outs from the University of Plymouth along with Cambridge University, the latter of which has particular appeal for me, being on my doorstep so to speak.
Crabb says, “Cambridge is a main base and is a good source for us, although we also have an interest further afield in Portugal within that too. Importantly though, we have had our first really big successful execution and we think we have several things coming on behind that."
And looking at its portfolio, there appear to be some very exciting businesses with major opportunities ahead, which Crabb says sees FIPP with increasingly larger stakes and also results in it standing its corner in the case of further specific funding rounds.
Perhaps one of the potential stars moving forward is Cambridge based Pulsiv, which has patented technology that is proven to improve energy efficiencies that need to convert to power.
However, I’ll return to that further on and open with Alusid that was spun out of the University of Central Lancashire and which sees it focused on producing premium-quality tiles, tabletops and architectural surfaces by recycling industrial waste ceramics, glass and other materials.
Crabb sounds upbeat on the prospects of this business, where he comments, “what it is doing is environmentally good, with lower costs and the using of less energy, but also, the products have to be of a good quality and prove desirable, which has been achieved."
As it stands, Alusid certainly appears to be making its mark on all these fronts, particularly in light of the commercial tie ups it has achieved, although it hasn’t all been plain sailing.
The CEO explained that whilst they had been making the tiles in batches it really wasn’t suitable in terms of a scaling up and meeting demand for volume.
Additionally, there were some minor technical issues regarding the materials being used, which along with the limited production constraints have now been rectified, opening the door for ramping up.
In the tile production process, in order to achieve volume and consistency there needs to be a constant run without a stop start operation and no impediment from heating up and cooling down and Alusid has now successfully conquered that issue.
Additionally, aside producing top quality products that come with the environmentally friendly label, energy use in production is potentially cut by as much as 35% as it uses lower firing temperatures.
Water usage in the process is also greatly reduced by up to 75% further adding to the attractions of the offering.
As a testament to the story and its products thus far, the company has in place a long- term partnership with the UK’s number one tile retailer Topps Tiles, through its commercial subsidiary Parkside.
Alusid has filled that void and the CEO says that the principle named tile range within Topps comes from Alusid and that there should be more news about that coming up.
Demand certainly appears to be there for the business and Crabb also adds that even when they were operating on a batch process, they successfully sold into the BBC, Nando’s, Pret and Netflix.
Now producing on a continual flow basis, which amounts to Alusid being able to make its tiles at high volumes on exactly the same equipment as used to make conventional tiles it has has also recently announced a very exciting collaboration with Imerys the French multi-national company that turns over in excess of four billion euros a year, where it specialises in the production and processing of industrial minerals.
The focus of the association for now will be on two trials, with Alusid making floor tiles and worktops using Imerys recycled materials.Importantly, whereas it previously had capacity of 4000m2 per year it can now produce 30,0002 a month from a single production line.
It will be interesting to hear further news on how that plays out, particularly given that there has already been positive contacts with potential customers including a leading retail brand. “It’s an interesting phase for our shareholders as we go from interesting tech, to the commercialisation crossover to delivery” says Crabb.
“Although at this stage I don’t think it will be anywhere near as valuable as Exscientia, we do own a lot more of it with 38% and it is one to watch."
Moving on, FIPP also holds stakes in some very interesting businesses in the graphene space, which although an area that to date has seen more talk than delivery from some would-be players in the market, prospects, here appear to look bright for FIPP.
Crabb says that whilst there has been lots of talk around graphene inks and concrete they are areas, that have as yet struggled.
In its case, FIPP has interests in CamGraPhic and Cambridge Raman Imaging, with the former focused on developing graphene-based photonic technology.
Its core product is a graphene photonic chip for data conversion that, with small variations dependent on applications, will constitute a single platform for datacom and telecom industries.
Graphene modulators and photodetectors will be integrated into silicon chips, exploiting the unique performance demonstrated so far operating across multiple telecommunication bands.
Benefits include higher speed, less energy use and heat reduction. Cambridge Raman Imaging on the other hand is developing graphene-enhanced ultra-fast lasers for use across a whole range of imaging applications.
This Company is a spin out from the University of Cambridge and the Politecnico di Milano in Italy and is initially focused on a graphene-enabled Raman-imaging scanning microscope for use in medicine to diagnose and track cancer tumours and for other detection applications.
There has, as a part of the development process been involvement with the world leading Cambridge Graphene Centre, which sees the highly regarded graphene expert Professor Andrea Ferrari on the board of CamGraPhic as an advisor.
Commenting on these particular investments, Crabb says that there is lots of pressure for lower costs and efficiency.Graphene Crabb adds that we should see good news flow from both companies which are further one’s to watch.
Another positive looking investment within the portfolio where there is a 20% stake and operating in the vast food space is Nandi Proteins. This company is very much focused on creating novel ingredients for use in the food industry to replace fat, E-numbers, additives and other undesirables.
Within this, it sees a concentration on major issues afflicting food companies such as addressing obesity concerns and environmental issues around processed foods. Nandi has been and is, working on the likes of reducing fat in sausages where it already has a relationship with Devro the sausage skin producer.
Speaking of this company, Crabb tells me that Nandi has been developing a whole range of ingredients that are coming to the market and are being rolled out now.
USP’s include health benefits and cost efficiency, the latter of which is extremely topical in the current high inflation environment and he concludes that it will be interesting to watch this one on commercial roll out.
Next up is The Vaccine Group, which is in part, concentrated on addressing virus’s that jump from animals into humans, an area that is extremely topical.
Here, I am told that it has received money from not only the UK government but the US and China too, where its technology has attracted plenty of interest.
Crabb adds that in terms of progress here, the next phase relating to commercial use will be interesting to watch out for as the company is now pointing to commercial milestones rather than merely the technical ones that have formed the focus.
With The Vaccine Group clearly making progress and looking to be operating in the right spot, FIPP’s 17% holding here could also go on to prove highly rewarding over time.
Speaking collectively from a Frontier Investor point of view on the pathway across the portfolio the CEO comments, “we talk about inflection points and in the phase we are going into for the leading companies, those points are around commercial delivery.
"You will also see within that, we have hired a bunch of CEO’s which is reflective of that commercial roll out, so from a Frontier shareholder point of view, that’s what I’d be focusing on. And what drives the near-term value is the commercial delivery within portfolio companies”.
Although there are a number of other portfolio companies not mentioned here, I do have to return to Pulsiv, which has offices in both Plymouth and Cambridge.
If there is one potential near term star in the making it might just be this business which holds patented technology in the power convertor space.
At a time when both efficiency of everyday appliances coupled with effective usage of energy are paramount, Pulsiv appears to be in the right place at the right time and may be on the verge of opening the door to a massive market.
In order to hear more on how it is fairing and the prospects ahead, I have also spoken with its CEO Darrell Kingham, who ran through where the business is at.
Kingham joined Pulsiv as CEO in 2021 having previously been at ARM for eleven years, where although having an electronic engineering background went on to excel in sales.
He was the first OEM sales person at Arm, where he worked with top tier players rolling out the model across the globe supporting Arm in becoming the processor of choice.
In terms of Pulsiv’s patented technology, it has immense appeal as in short, it can improve the energy efficiency of devices that need to convert power.
These typically include the power converters used in a huge range of everyday consumer devices such as televisions, mobile phones and laptops, battery chargers and the micro-inverters used in photovoltaic solar installations.
The company began life as a spin-out from Plymouth University being founded by Dr.Zaki Ahmed who remains at the business as chief strategy officer.
Speaking on both the technology and the business, Kingham says that it was clear that the technology was delivering incredible results, but that there just wasn’t the knowledge in place on how to really commercialise it.
Hence, FIPP’s active support and Kingham’s arrival where he adds that they spent two years taking the principles of what they had and subsequently turning that into a way of monetizing it to maximise value and isn’t easy to replicate.
He says “Fundamentally, we are really about trying to address the global green agenda which means getting the most efficient systems using our IP where there are almost limitless applications for it."
Although there was plenty for Pulsiv to aim for in commercial terms, Kingham says that they decided to commence by targeting two specific areas. These were solar with the other being the mains AC-DC conversion in relation to household appliances.
Speaking firstly on solar, he says that the aim was to extract more energy from the panels than what is currently typically achieved.With electronics connecting from the panel to the grid, Pulsiv’s solution can easily be installed, replacing the existing offering thus generating more electricity from the panel itself.
Expanding, I am told that one of the lead partners Pulsiv is working with currently ships solar panels that have a 415w panel that under scrutiny shows that it’s electronic system to caps out at 300w. “You are effectively giving up a quarter of your panel at the very start” says Kingham, “so you want to make sure that the electronics connected can absolutely support every watt of energy that comes out of the panel and that is what we are doing”.
There are also two other very key aspects in its solar offering for Pulsiv where the company has patented what amounts to a unique way of actually exercising the panel that enables the squeezing out of more energy than existing solutions.
This amounts in part to successfully impressing a voltage on a panel in a specific way, that actually changes the behaviour of the panel enabling extraction of more energy from than what is currently achieved.
Kingham, says that even though they set the bar really high, what they have achieved in the lab has way surpassed what they had expected.
Aside solar, the really major market and opportunity that lies ahead is across industrial and home appliances space, which takes in lap top chargers, game consoles, white goods, battery chargers and they are just for starters.
“What is interesting here is that we have found a way of converting AC-DC completely differently to how it has been done previously”, says Kingham “and what that means, is that you can now use low- cost components to create high efficiency systems”.
Pulsiv’s offering also and importantly greatly improves efficiency, providing uplift across all conditions which results in huge savings for the consumer.
Being universal too, it can be used anywhere across the world, which provides for an extensive runway in terms of penetration, adoption and growth.
As part of the developing story Kingham tells me, that Salom a leading global manufacturer of power supplies and consumer products is an early adopter who having gone out to market said that they haven’t seen anything like it before.
They now have designs that are low cost and more efficient than what exists and Pulsiv is working very closely with them. In terms of where Pulsiv is now at on the commercial journey Kingham tells me that the AC-DC Osmium product that was launched in September of last year will see systems shipped out to customers.
There is also now a concentrated focus on design wins in conjunction with the building of a distribution network with a whole bunch of leads to pursue.
The company is already seeing working applications around LED lighting, TV’s and they are currently working with one vacuum cleaner company. “At the moment it is just about getting through the design process which is our primary focus right now” Kingham says.
“The solution is ready to sell and we have got our own custom chip where our IP goes into a microcontroller and the designs and systems that you need to build around our system are freely available on our website. "In order to bring it to life though, you need to buy our chip which holds all of the know how which is protected in such a way that it prevents cloning or reverse engineering."
Clearly the opportunity for Pulsiv looks potentially massive and with a capital light business model that see the company selling a chip as opposed to going down the licensing route the possibilities are mind boggling.
Kingham informs me that they have already been working with a Tier 1 semi-conductor company that meets their needs, although he adds that the beauty of the model is that they can effectively use any partner they chose.
To this end they are actually now working with a second semi-conductor player which sits well for Pulsiv’s needs regarding a different sector of the market.
Pulsiv is already engaged with major market players, Bosch is one of the earliest names revealed, and although others can’t be announced due to confidentiality agreements, Kingham says that they are recognisable names, whilst there are also other conversations going on. “It is an astronomical opportunity but with such a broad capability, you have to start with just one or two to go after” says the CEO.
Regarding competition of which there are many players, Kingham says that in Salom’s own comparisons nobody else came near to what Pulsiv can achieve, which is perhaps indicative of the position the company occupies.
To date, Pulsiv has raised very modest sums of money on its journey but is now in what Kingham describes as acceleration mode.
Given that they have the opportunity and the wish to scale up it seems apparent that a decent amount of cash will be needed in order to execute and the CEO doesn’t disagree.
He says that they are planning well ahead in managing the scale of pace, so are considering and looking at all options to maximise the opportunity.
To date, aside FIPP’s contribution, investment has come from high net worth individuals or angel investors, with an absence of well known Institutional investors.
No doubt though, given such a compelling story and the growth prospects Pulsiv would if it chose, have little trouble attracting some of the big players, with FIPP undoubtedly standing its own corner.
The story in this particular case is clearly an exciting one that adds considerable flavour to the FIPP investment case and it will be interesting to see how things play out in the coming months and years.
FIPP deliver Interim Results in the next month and I plan to add further comment at that time.