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Allied Minds has announced the sale of its stake in HawkEye 360 for $65.6m to Advance Publications, a US family office. The transaction is expected to complete in Q419, subject to shareholder approval (shareholders representing 58% of shares have indicated they will vote in favour). HawkEye 360 announced its $70m Series B funding round in August 2019, backed by Airbus and Esri, at a pre-money valuation of $200m. The Advance offer has been struck at a c 13% discount to the fully diluted valuation of this last funding round, delivering a 5.6x ROI and IRR of 96%. The company expects to retain 50% of the proceeds with 50% (c 11p per share, pps) returned to shareholders via a special dividend or share buyback.
Written by
Allied Minds |
Sale of HawkEye 360, returns to shareholders |
Class 1 disposal |
Investment companies |
24 September 2019 |
Share price performance
Business description
Next events
Analysts
Allied Minds is a research client of Edison Investment Research Limited |
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Allied Minds has announced the sale of its stake in HawkEye 360 for $65.6m to Advance Publications, a US family office. The transaction is expected to complete in Q419, subject to shareholder approval (shareholders representing 58% of shares have indicated they will vote in favour). HawkEye 360 announced its $70m Series B funding round in August 2019, backed by Airbus and Esri, at a pre-money valuation of $200m. The Advance offer has been struck at a c 13% discount to the fully diluted valuation of this last funding round, delivering a 5.6x ROI and IRR of 96%. The company expects to retain 50% of the proceeds with 50% (c 11p per share, pps) returned to shareholders via a special dividend or share buyback.
Period end |
Ownership adjusted value (OAV) (US$m) |
Parent-level net cash (US$m) |
NAV |
NAV/share |
P/NAV |
12/16 |
415.8 |
136.7 |
552.9 |
208.0 |
0.29 |
12/17 |
395.6 |
84.2 |
479.8 |
150.0 |
0.40 |
06/18 |
350.1 |
66.0 |
416.1 |
132.4 |
0.45 |
12/18* |
226.7 |
50.6 |
277.3 |
92.7 |
0.65 |
Note: NAV is calculated as fair value plus net cash at the parent level. *FY18 NAV is based on our estimate of FY18 fair value as this is no longer disclosed by the company.
Sale of stake in HawkEye 360 for $65.6m
Following HawkEye 360’s recent Series B funding round with Airbus Industries and Esri (an international supplier of mapping software), Allied Minds has announced the sale of its stake in HawkEye 360 for $65.6m to Advance Publications, a US family office. Subject to shareholder approval, the deal is expected to complete in Q419. Gross cash proceeds from the disposal total $65.6m (21.9pps). Stripping out Allied Minds’ $5m participation in the Series B round (valued as cash), the deal represents a 5.6x ROI on Allied Minds’ investment and an IRR of 96%. Irrevocable undertakings or letters of support in favour of the transaction have been received from shareholders representing 58% of Allied Minds issued share capital.
Use of proceeds
Allied Minds intends to initially return $32.8m (11pps), 50% of the gross proceeds, to shareholders via a special dividend, share buyback or other method subject to market conditions. The remaining $32.8m should allow Allied Minds to continue to participate in future fund raisings within its existing technology portfolio to maximise long-term shareholder value.
Valuation: 35–38% discount to a de-risked NAV
This proposed disposal goes some way to validate Allied Minds’ strategy. Over the summer, Allied Minds delivered additional validation for two of its three principal portfolio companies and has now (subject to the shareholder vote) effected a material return of capital to shareholders. Allied Minds shares trade at a 35% discount to our estimated FY18 NAV of 92.7p or at a 38% discount to our estimated adjusted NAV of 96.3p (adjusted for HawkEye 360, Federated Wireless and cash).
Valuation: Material 35–38% discount to a de-risked NAV
Although Advance Publications’ offer is struck at a discount to the valuation of the latest funding round for HawkEye 360, the investment still promises very good returns for Allied Minds
After stripping out Allied Minds’ $5m participation in the Series B round (valued as cash), the gross cash proceeds from the disposal total $65.6m (21.9pps), representing a 5.6x ROI on Allied Minds’ investment and an IRR of 96% over the four-year investment life.
Based on the fully diluted valuation, the offer has been made at a c 13% discount to the valuation of the Series B round, of which only the first $35m tranche (of a $70m total round in total) has closed.
Exhibit 1: HawkEye 360
Company |
Description |
Net value at 31/12/18 (US$m) |
Net cash invested (US$m) |
Fair value change (US$m) |
Net value as at 6/8/19 (US$m) |
% held at 6/8/19 |
Uplift in fair value / share (p) |
Uplift in NAV / share (p) |
Advance offer value (24/9/19) |
Advance discount to full Series B valuation |
HawkEye 360 |
RF data analytics company |
43.4 |
5.0 |
32.3 |
75.7 |
28.0 |
10.8 |
9.1 |
65.6 |
13.4% |
Source: Company, Edison Investment Research
The proposed disposal goes some way to validate Allied Minds’ strategy. Over the summer, Allied Minds delivered additional validation for two of its three principal portfolio companies and has now (subject to the shareholder vote) effected a material return of capital to shareholders.
Based on our calculations, Allied Minds shares trade at a 35% discount to our estimated FY18 NAV of 92.7p or a 38% discount to our estimated adjusted NAV of 96.3p (adjusted for the anticipated cash proceeds from HawkEye 360, taking the valuation from the latest 4 September 2019 funding round for Federated Wireless, the cash invested in the HawkEye 360 and Federated Wireless funding rounds, as well as a nominal cash burn of $5m for H119).
Our portfolio analysis is set out below.
Exhibit 2: Latest adjusted NAV calculations
Company |
Adjusted value at 31/12/18 US$ |
Adjusted value at 24/9/19 US$ |
AM fully diluted holding |
Basis of estimate |
Spin Memory |
73.4 |
73.4 |
34% |
Valuation of last round |
HawkEye 360 |
43.4 |
65.6 |
28% |
Cash offer |
Federated Wireless |
63.5 |
72.0 |
36% |
Valuation of last round |
BridgeSat |
30.9 |
30.9 |
63% |
Valuation of last round |
Precision Biopsy |
2.5 |
2.5 |
55% |
Cash value of bridge round |
SciFluor |
2.0 |
2.0 |
60% |
Cash value of bridge round |
TableUp |
4.3 |
4.3 |
30% |
Valuation of last round |
Orbital Sidekick |
3.9 |
3.9 |
30% |
Valuation of last round |
QuayChain |
0.6 |
0.6 |
65% |
Valuation of last round |
Spark Insights |
2.3 |
2.3 |
60% |
Valuation of last round |
Other investments |
||||
Fair value |
226.7 |
257.4 |
|
|
Net cash held at the parent company |
50.6 |
30.6 |
||
NAV |
277.3 |
288.0 |
||
Implied NAV discount |
||||
Share price as at 24/9/19 |
60.0p |
|||
Full adjusted NAV |
92.7 |
96.3p |
38% |
|
Top 4 adjusted NAV |
91.1p |
34% |
||
FY18 NAV |
92.7p |
35% |
Source: Company, Edison Investment Research
Exhibit 3: Financial summary
$'000 |
2014 |
2015 |
2016 |
2017 |
2018 |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
7,715 |
3,300 |
2,664 |
5,001 |
5,561 |
Cost of Sales |
(5,416) |
(3,925) |
(5,563) |
(5,242) |
(2,827) |
||
Gross Profit |
2,299 |
(625) |
(2,899) |
(241) |
2,734 |
||
Normalised operating profit |
|
|
(47,510) |
(89,372) |
(103,925) |
(94,542) |
(83,583) |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(1,479) |
(309) |
(1,365) |
(2,363) |
(545) |
||
Share-based payments |
(8,939) |
(7,041) |
(8,385) |
(7,562) |
(7,413) |
||
Reported operating profit |
(57,928) |
(96,722) |
(113,675) |
(104,467) |
(91,541) |
||
Net Interest |
222 |
670 |
2,318 |
305 |
1,313 |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
(1,301) |
||
Fair value changes |
0 |
(1,937) |
(17,585) |
(6,953) |
138,841 |
||
Profit Before Tax (norm) |
|
|
(47,288) |
(90,639) |
(119,192) |
(101,190) |
55,270 |
Profit Before Tax (reported) |
|
|
(57,706) |
(97,989) |
(128,942) |
(111,115) |
47,312 |
Reported tax |
0 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(47,288) |
(90,639) |
(119,192) |
(101,190) |
55,270 |
||
Profit After Tax (reported) |
(57,706) |
(97,989) |
(128,942) |
(111,115) |
47,312 |
||
Minority interests |
12,228 |
20,192 |
32,609 |
35,337 |
(7,990) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(35,060) |
(70,447) |
(86,583) |
(65,853) |
47,280 |
||
Net income (reported) |
(45,478) |
(77,797) |
(96,333) |
(75,778) |
39,322 |
||
Basic average number of shares outstanding (m) |
186 |
215 |
217 |
236 |
241 |
||
EPS - basic normalised ($) |
|
|
(0.19) |
(0.33) |
(0.40) |
(0.28) |
0.20 |
EPS - diluted normalised ($) |
|
|
(0.19) |
(0.33) |
(0.40) |
(0.28) |
0.20 |
EPS - basic reported ($) |
|
|
(0.24) |
(0.36) |
(0.44) |
(0.32) |
0.16 |
Dividend ($) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
n/a |
(57.2) |
(19.3) |
87.7 |
11.2 |
||
Gross Margin (%) |
29.8 |
-18.9 |
-108.8 |
-4.8 |
49.2 |
||
Normalised Operating Margin |
n/a |
n/a |
n/a |
n/a |
n/a |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
44,039 |
92,784 |
38,232 |
28,369 |
86,096 |
Intangible Assets |
3,409 |
4,384 |
2,762 |
1,074 |
1,221 |
||
Tangible Assets |
16,330 |
34,173 |
31,882 |
26,627 |
5,997 |
||
Investments & other |
24,300 |
54,227 |
3,588 |
668 |
78,878 |
||
Current Assets |
|
|
248,991 |
158,427 |
232,007 |
184,792 |
107,034 |
Stocks |
2,919 |
1,511 |
2,551 |
0 |
0 |
||
Debtors |
6,305 |
7,342 |
5,900 |
15,642 |
6,400 |
||
Cash & cash equivalents |
224,075 |
105,555 |
209,151 |
158,075 |
100,234 |
||
Cash at parent* |
|
|
n/a |
n/a |
136,700 |
84,200 |
50,600 |
Other |
15,692 |
44,019 |
14,405 |
11,075 |
400 |
||
Current Liabilities |
|
|
(62,480) |
(108,974) |
(155,402) |
(200,202) |
(69,557) |
Creditors |
(11,339) |
(14,268) |
(13,941) |
(14,276) |
(13,030) |
||
Tax and social security |
(947) |
(395) |
(458) |
(4,296) |
(2,333) |
||
Short term borrowings |
(213) |
(228) |
(115) |
0 |
0 |
||
Subsidiary preferred shares |
(49,981) |
(94,083) |
(140,888) |
(181,630) |
(54,194) |
||
Long Term Liabilities |
|
|
(717) |
(863) |
(720) |
(867) |
(436) |
Long term borrowings |
(338) |
(112) |
0 |
0 |
0 |
||
Other long term liabilities |
(379) |
(751) |
(720) |
(867) |
(436) |
||
Net Assets |
|
|
229,833 |
141,374 |
114,117 |
12,092 |
123,137 |
Minority interests |
4,946 |
10,631 |
20,797 |
59,241 |
4,490 |
||
Shareholders' equity |
|
|
234,779 |
152,005 |
134,914 |
71,333 |
127,627 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
(44,618) |
(85,286) |
(97,290) |
(88,440) |
(77,525) |
||
Working capital |
(981) |
2,652 |
468 |
(2,477) |
6,033 |
||
Exceptional & other |
0 |
0 |
0 |
0 |
(283) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Net operating cash flow |
|
|
(45,599) |
(82,634) |
(96,822) |
(90,917) |
(71,775) |
Capex |
(1,764) |
(23,213) |
(4,087) |
(1,522) |
(9,110) |
||
Acquisitions/disposals |
(38,967) |
(51,786) |
74,816 |
5,853 |
(18,884) |
||
Net interest |
222 |
716 |
1,602 |
138 |
896 |
||
Equity financing |
154,408 |
2,443 |
79,319 |
1,595 |
1,594 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
54,473 |
36,165 |
48,993 |
33,892 |
39,438 |
||
Net Cash Flow |
122,773 |
(118,309) |
103,821 |
(50,961) |
(57,841) |
||
Opening net debt/(cash) |
|
|
NA |
(223,524) |
(105,215) |
(209,036) |
(158,075) |
FX |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
0 |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(223,524) |
(105,215) |
(209,036) |
(158,075) |
(100,234) |
Source: Company data, Edison Investment Research
|
|
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