Allied Minds — Waiting for news on funding rounds

Allied Minds (ALM)

Last close As at 20/06/2024

22.60

−0.60 (−2.59%)

Market capitalisation

54m

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Research: TMT

Allied Minds — Waiting for news on funding rounds

Allied Minds’ FY20 results confirmed parent cash of US$22.3m, with revenues of US$0.5m (FY19: US$2.7m), mainly from one-off engineering and service contracts. There has been no further material news on portfolio developments, with FY21 funding rounds anticipated for Federated Wireless, BridgeComm, Spin Memory and Spark Insights. Given their short-term need for cash, we have elected to reduce the value of Spin Memory and Spark Insights to zero in our estimated NAV, so any funding news should be a positive catalyst. Allied Minds’ shares trade at a c 46% discount to our FY20 adjusted NAV estimate of 42.5p per share, based on latest funding rounds. We will be interested to hear directly from the portfolio companies at the capital markets day (CMD) on 14 April 2021.

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Written by

TMT

Allied Minds

Waiting for news on funding rounds

FY20 results

Investment companies

9 April 2021

Price

22.8p

Market cap

£55m

US$1.38/£

Parent cash (US$m) at 31 December 2020

22.3

Shares in issue

242.2m

Free float

91%

Code

ALM

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(20.3)

(24.6)

(12.0)

Rel (local)

(23.1)

(26.2)

(30.2)

52-week high/low

44.8p

22.1p

Business description

Allied Minds is a technology holding company with a concentrated investment portfolio predominantly focused on early-stage companies. Its portfolio companies are US-based spinouts from US federal government laboratories and universities.

Next events

Capital markets day

14 April 2021

AGM

12 May 2021

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Allied Minds is a research client of Edison Investment Research Limited

Allied Minds’ FY20 results confirmed parent cash of US$22.3m, with revenues of US$0.5m (FY19: US$2.7m), mainly from one-off engineering and service contracts. There has been no further material news on portfolio developments, with FY21 funding rounds anticipated for Federated Wireless, BridgeComm, Spin Memory and Spark Insights. Given their short-term need for cash, we have elected to reduce the value of Spin Memory and Spark Insights to zero in our estimated NAV, so any funding news should be a positive catalyst. Allied Minds’ shares trade at a c 46% discount to our FY20 adjusted NAV estimate of 42.5p per share, based on latest funding rounds. We will be interested to hear directly from the portfolio companies at the capital markets day (CMD) on 14 April 2021.

Period
end

Portfolio fair value (US$m)

Parent-level net cash (US$m)

Adjusted NAV
(US$m)

NAV/share
(p)

P/NAV
(x)

06/19*

266.1

31.3

297.3

100.2

0.23

12/19*

169.0

31.9

200.8

66.1

0.35

06/20*

175.3

22.7

197.9

62.7

0.36

12/20

122.3

22.3

144.6

42.5

0.54

Note: NAV is based on Edison estimate of fair value, plus net cash at the parent level. Note: *H119, FY19 and H120 net cash and NAV figures include post period-end adjustments.

FY20 results: New hands at the helm

FY20 revenue fell to US$0.5m (mainly from one-off engineering and service contracts) after the deconsolidation of Federated Wireless in FY19, with SG&A falling to US$10.5m following the deconsolidation, as well as HQ cost reductions. Allied Minds reported a consolidated net loss of US$55.5m (FY19: profit of US$51.1m). Cash and cash equivalents fell to US$24.5m (FY19: US$90.6m), with parent cash falling to US$22.3m (FY19: US$84.1m), reflecting the US$39.7m special dividend payable in FY20 after the sale of HawkEye 360 in FY19.

Portfolio: Updates anticipated at CMD

Allied Minds’ portfolio made substantive progress in FY20, with investee companies working with a range of leading strategic and financial partners, including Amazon Web Services, Arm Holdings, Boeing, Microsoft Azure, Nokia and Temasek, as well as the US government. As yet, there has been no news on funding rounds in FY21, which we would expect as the year progresses. With a pressing need for funding at Spin Memory and Spark Insights, we have chosen to mark these investments down to zero, pending any newsflow. This stance is reflected in our adjusted FY20 NAV estimate and means that future funding news should be positive for Allied Minds.

Valuation: An opportunistic recovery play

As has been mentioned previously, key portfolio companies are held at historical funding-based valuations mostly established in 2018/19, despite commercial progress and continuing strong deep tech valuations. Having elected to reduce the value of Spin Memory and Spark Insights to zero (due to slow commercial progress, funding concerns), our adjusted FY20 NAV per share is 42.5p, with the shares trading at a 46% discount. Share price weakness since the results suggests that shareholders are keen to see progress on funding.

FY20 results

As has been the case over the last few years, Allied Minds’ FY20 financial results largely reflect the deconsolidation of subsidiaries, more than the financial progress of the business. Federated Wireless was deconsolidated in the FY19 comparator year (September 2019), as Allied Minds’ shareholding fell below 50%. Otherwise, only BridgeComm, Spark Insights and OcuTerra were consolidated in FY20, with the remaining assets now held as minorities on the balance sheet.

Revenue fell to US$0.5m in FY20 (FY19: US$2.7m), after the deconsolidation of Federated Wireless in FY19 (subsequently equity accounted), with a small revenue contribution from BridgeComm. Selling, general and administrative (SG&A) expenses fell to US$10.5m (FY19: US$34.3m) with the deconsolidation of Federated Wireless, as well as HQ cost reductions implemented in FY19. Net finance costs increased to US$1.8m in FY20 (FY19: income of US$10.0m). Other losses increased to US$38.8m (FY19: income of US$89.4m), chiefly reflecting a US$31.9m loss on investments held at fair value. As a result, Allied Minds reported a total comprehensive loss of US$55.6m (FY19: profit of US$51.1m).

Group cash and cash equivalents fell to US$24.5m (FY19: US$90.6m), with US$17.8m of cash used in operations, US$10.7m of cash used in investing activities as well as the US$39.7m cash dividend paid to shareholders following the sale of HawkEye 360 in FY19. Short-term loans increased to US$3.1m (2019: US$ zero), primarily due to US$2.5m of convertible promissory notes at BridgeComm. Cash at the parent level fell to US$22.3m at FY20 year end (FY19: US84.1m).

Net assets decreased to US$58.3m (FY19: US$152.6m), reflecting the US$55.6m loss for the period, as well as the US$39.7m dividend.

New hands at the helm: Cash and investment strategy

It is worth noting the change of tone in the FY20 results release, with the board taking over direct responsibility for monitoring and supporting Allied Minds’ investee companies (CEO steps down, now a board-led company).

The board confirmed that Allied Minds’ cash position would be used strategically to support portfolio companies that will maximise returns to shareholders. While Allied Minds will continue to support all its portfolio companies, the management teams remain primarily responsible for securing new investment. The board believes that on balance, taking into consideration the challenges facing certain of the group’s portfolio companies, the group remains well-positioned to maximise value and deliver additional returns to shareholders within a reasonable timeframe.

Following successful monetisation events, the board anticipates distributing any net proceeds to shareholders, after due consideration of potential follow-on investment opportunities within the existing portfolio and working capital requirements.

Portfolio update: Funding to drive NAV appreciation

Following our longer strategic update in January, FY21 to see benefits of commercial progress, and ahead of the capital markets day on 14 April 2021, we provide a brief portfolio update below.

Exhibit 1: NAV breakdown by asset (based on Edison’s adjusted FY20 NAV of 42.5p)

Source: Edison Investment Research

COVID-19 has had a particular negative impact on three companies in the portfolio, Federated Wireless, Spin Memory and Spark Insights. As highlighted below, Federated Wireless is now back on track with its strategic plan, whilst Spin Memory requires commercial and financial validation of its model and Spark Insights requires a funding round in the near term to remain a going concern.

Federated Wireless expects to build its recurring revenue base in FY21. The company initially suffered from the impact of COVID-19, but was able to mitigate this impact and is now back on track with its strategic plan and timing, including meeting projected revenue targets for 2021. The company has sufficient cash to fund its growth into 2022 but, assuming it continues to meet milestones, may consider a Series D funding round in FY21.

BridgeComm is pushing forward on two fronts: in September 2020, it signed a partnership with Nokia to develop an ultra-high-speed throughput last mile connectivity solution for 5G networks. BridgeComm also continues to work closely with Boeing, having signed a joint development agreement with Boeing HorizonX for applications of its secure, high-speed One-to-Many (OTM) technology. Post-period end, on successful achievement of development milestones under their agreement, BridgeComm secured an additional US$1.5m of financing from Boeing. BridgeComm will need to secure further financing in FY21 to fund ongoing development.

Orbital Sidekick has entered into a definitive agreement on its Series A funding round led by Temasek. This was announced in December 2020 and is expected to close in Q221, subject to approval by the Committee on Foreign Investments in the United States. Orbital Sidekick was awarded a multi-year contract by the Department of the US Air Force’s commercial investment group (AFVentures) as part of its Strategic Financing (STRATFI) programme, which will provide matched funding to the Series A funding round.

TouchBistro: following the sale of its portfolio company, TableUp, to TouchBistro for US$6m in shares in August 2020, Allied Minds holds shares in TouchBistro. As a service provider to the hospitality sector, COVID-19 will have had a significant impact on TouchBistro’s trading in FY20 and FY21 and, as such, we would not expect any IPO before FY22. We understand that TouchBistro remains well-funded.

Spin Memory faces significant liquidity issues due to an inability to secure new customers coupled with the unexpected loss of a government bid in late Q420. A nine-month delay to the testing of its development chip with ARM (due to the work-from-home orders) has had a direct impact on the company. Spin continues to face commercial and financing challenges that the Spin Board of Directors, with the support of the NEDs, is working to address in 2021. Given the significant commercial uncertainties behind Spin Memory (exemplified by the government contract loss), we have elected to write down Spin Memory’s value to zero. As a result, any funding news would have a positive impact on Spin Memory’s fair value and our adjusted NAV.

Spark Insights continues to achieve development milestones. However, the delay in securing financing has put the company in a difficult cash position. In the event that financing is not realised within the coming weeks, Spark Insights may no longer be a going concern. We have elected to reduce the value of Spark Insights to zero and, as a result, any funding news should have a positive impact on Spark Insights’ fair value and our adjusted NAV estimate.

OcuTerra (previously SciFluor) remains a consolidated holding of Allied Minds. OcuTerra’s management continues in its efforts to secure funding for Phase II trials, but it is uncertain whether it will be successful. As such, given the lack of commercial progress, we value the holding at zero.

Valuation: Potential for NAV uplift in FY21

Exhibit 2 sets out our adjusted NAV calculation based on valuations disclosed by the company.

Exhibit 2: Edison’s adjusted NAV estimate based on the reported funding rounds

Company

Business description

Latest funding round

Latest post-money value (100%) (US$m)

Fully diluted value
31/12/20 (US$m)

Fully diluted value
31/12/20
(p/share)

ALM holding 31/12/20

ALM fully diluted holding
31/12/20

Date of ALM last reported valuation

Basis of estimate for fair value assessment

Federated Wireless

5G spectrum-sharing and CaaS

Apr 20

215.0

78.7

23.6

43%

37%

Sep 19

Valuation of last round (Strategics)

BridgeComm

Optical communications service provider

Aug 20

38.0

23.9

7.2

81%

63%

Sep 18

Valuation of last round (Strategics)

Orbital Sidekick*

Space-based hyperspectral imaging and analytics

Dec 20

46.0

11.1

3.3

27%

24%

Dec 20

Valuation of last round (3rd party)

TouchBistro
(TableUp)

Restaurant supply chain software provider

Aug 20

6.0

6.0

1.8

-

-

Aug 20

Valuation of all-share acquisition

Spin Memory**

MRAM Semiconductor memory

Jul 20

180.3

-

-

43%

34%

Apr 19

Valuation of last round (Strategics)

Spark Insights**

Property insurance analytics

Apr 19

3.2

-

-

71%

60%

Apr 19

Valuation of last round (Allied Minds)

Portfolio fair value (period end)

 

119.7

35.8

 

Net cash at parent company (period end)

22.3

6.7

Adjusted NAV

 

142.0

42.5

 

Latest share price

22.8

Share price discount

46%

Source: Allied Minds, Edison Investment Research. Notes: *Orbital Sidekick has been revalued based on the announced funding round, although this has yet to close. **Due to a lack of financial and commercial progress at Spin Memory and Spark Insights, we have elected to reduce the value of these holdings to zero pending funding news.

Allied Minds is a deep tech holding company that offers exposure to a concentrated number of emerging technology businesses. As its portfolio comprises early-stage companies, which are largely pre-revenue, the preferred valuation methodology is to look at the valuation of their latest funding rounds. Certain of these valuations were established in FY18 and FY19, although there may have been subsequent top-up funding at that established valuation.

Despite evident progress over the course of FY20, including positive newsflow, top-up funding rounds and continuing strong technology valuations, we would note that Federated Wireless and BridgeComm are still held at the historical valuations established at the time of their last major funding rounds in FY18 and FY19. Given the uncertainties around Spin Memory (lack of commercial progress, contract loss) and Spark Insights (cash concerns), we have elected to adjust the reported value of these holdings to zero, pending funding news.

Based on our calculations, we calculate an adjusted NAV per share of 42.5p, with the current share price at a 46% discount to this value. Were we to include Spin Memory and Spark Insights at the full valuation of their latest rounds, the unadjusted reported NAV would increase to 61.4p, implying a discount of 63% to the current share price.

With all six direct holdings (ex TouchBistro) seeking or closing funding rounds in FY21, we expect material changes in NAV over the next 12 months as funding rounds complete.

Exhibit 3: Financial summary

US$000s

2016

2017

2018

2019

2020

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

2,664

5,001

5,561

2,692

480

Cost of Sales

(5,563)

(5,242)

(2,827)

(1,433)

(210)

Gross Profit

(2,899)

(241)

2,734

1,259

270

Normalised operating profit

 

 

(103,925)

(94,542)

(83,583)

(49,997)

(13,887)

Amortisation of acquired intangibles

-

-

-

-

-

Exceptionals

(1,365)

(2,363)

(545)

(671)

-

Share-based payments

(8,385)

(7,562)

(7,413)

1,465

(1,052)

Reported operating profit

(113,675)

(104,467)

(91,541)

(49,203)

(14,939)

Net Interest

2,318

305

1,313

741

(23)

Joint ventures & associates (post tax)

-

-

(3,658)

(28,850)

(6,845)

Fair value changes

(17,585)

(6,953)

139,240

127,566

(33,697)

Profit Before Tax (norm)

 

 

(119,192)

(101,190)

53,312

49,460

(54,452)

Profit Before Tax (reported)

 

 

(128,942)

(111,115)

45,354

50,254

(55,504)

Reported tax

-

-

-

-

-

Profit After Tax (norm)

(119,192)

(101,190)

53,312

49,460

(54,452)

Profit After Tax (reported)

(128,942)

(111,115)

45,354

50,254

(55,504)

Minority interests

32,609

35,337

(7,999)

1,081

2,479

Discontinued operations

-

-

-

-

-

Net income (normalised)

(86,583)

(65,853)

45,313

50,541

(51,973)

Net income (reported)

(96,333)

(75,778)

37,355

51,335

(53,025)

Basic average number of shares outstanding (m)

217

236

240

241

242

EPS - basic normalised ($)

 

 

(0.40)

(0.28)

0.19

0.21

(0.21)

EPS - diluted normalised ($)

 

 

(0.40)

(0.28)

0.19

0.21

(0.21)

EPS - basic reported ($)

 

 

(0.44)

(0.32)

0.16

0.21

(0.22)

Dividend ($)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

(19.3)

87.7

11.2

(51.6)

(82.2)

Gross Margin (%)

-108.8

-4.8

49.2

46.8

56.3

Normalised Operating Margin

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

38,232

28,369

83,739

72,695

44,416

Intangible Assets

2,762

1,074

1,221

197

-

Tangible Assets

31,882

26,627

5,997

1,485

1,596

Right of use assets

-

-

-

1,016

651

Investments & other

3,588

668

76,521

69,997

42,169

Current Assets

 

 

232,007

184,792

107,034

97,854

32,584

Stocks

2,551

-

-

-

-

Debtors

5,900

15,642

6,400

5,702

5,816

Cash & cash equivalents

209,151

158,075

100,234

90,571

24,489

Cash at parent*

136,700

84,200

50,600

84,100

22,300

Other

14,405

11,075

400

1,581

2,279

Current Liabilities

 

 

(155,402)

(200,202)

(69,557)

(14,183)

(16,468)

Creditors

(13,941)

(14,276)

(13,030)

(4,685)

(2,101)

Tax and social security

(458)

(4,296)

(2,333)

(3,457)

(3,697)

Short term borrowings

(115)

-

-

-

(3,149)

Lease liabilities

-

-

-

(1,024)

(1,024)

Subsidiary preferred shares

(140,888)

(181,630)

(54,194)

(5,017)

(6,497)

Long Term Liabilities

 

 

(720)

(867)

(436)

(3,795)

(2,246)

Long term borrowings

-

-

-

-

-

Lease liabilities

-

-

-

(1,830)

(806)

Other long term liabilities

(720)

(867)

(436)

(1,965)

(1,440)

Net Assets

 

 

114,117

12,092

120,780

152,571

58,286

Minority interests

20,797

59,241

(18,484)

(115)

2,264

Shareholders' equity

 

 

134,914

71,333

102,296

152,456

60,550

CASH FLOW

Op Cash Flow before WC and tax

(97,290)

(88,440)

(77,525)

(47,173)

(12,871)

Net interest

1,602

138

1,313

741

(23)

Working capital

468

(2,477)

4,772

506

(4,047)

Exceptional & other

-

-

-

267

-

FX

-

-

561

808

(116)

Tax

-

-

-

-

-

Net operating cash flow

 

 

(95,220)

(90,779)

(70,879)

(44,851)

(17,057)

Capex

(4,087)

(1,522)

(9,110)

(3,675)

(564)

Acquisitions/disposals

74,816

5,853

(18,884)

25,180

(10,777)

Net cash (used in)/ provided by investing activities

 

70,729

4,331

(27,994)

21,505

(11,341)

Equity financing

79,319

1,595

1,594

1,981

3,173

Payment of lease liability

-

-

-

(1,540)

(1,150)

Dividends

-

-

-

(12,050)

(39,707)

Other

48,993

33,892

39,438

25,292

-

Net Cash Flow

103,821

(50,961)

(57,841)

(9,663)

(66,082)

Opening net debt/(cash)

 

 

(105,215)

(209,036)

(158,075)

(100,234)

(90,571)

Other non-cash movements

-

-

-

-

-

Closing net debt/(cash)

 

 

(209,036)

(158,075)

(100,234)

(90,571)

(24,489)

Source: Company accounts. Note: *For clarity, cash at parent has been broken out as a separate line from cash & cash equivalents. As a line item, it does not form part of the calculation for current assets.

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United Kingdom

New York +1 646 653 7026

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3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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