VSA Capital Market Movers – Frontier IP Group


VSA Morning Technology Comment, 08/07/21

Frontier IP Group (LON:FIPP)

Portfolio Company CamGraphIC to receive funding of up to GBP1.5m

Frontier IP Group has today announced that portfolio company, CamGraPhIC Limited (“CamGraphIC” or the “Company”) has put in place a loan facility which will provide funding of up to GBP1.5m to enable CamGraphIC to accelerate the development of its growth. Frontier IP holds a 26.7% equity stake in CamGraphIC.

Yesterday, Frontier IP subscribed for GBP0.84m of loan notes – this in accordance with a loan facility comprising amounts that have been advanced by Frontier IP to CamGraphIC between 13 January 2021 and 24 June 2021. The Loan Notes are interest-bearing, have a three-year term and have 100% warrant cover. Frontier IP has also previously advanced GBP0.21m to CamGraphIC to provide working capital – this under loan agreements entered into in 2019 and 2020. CamGraphIC, in June 2021, completed its first equity fundraising of GBP0.61m.

CamGraphIC is the Group’s second graphene spin out from the University of Cambridge. The Company was formed to develop graphene-based photonics for high-speed data and telecommunications. CamGraPhIC uses 2D materials to create low power electro-optical interfaces that convert electrical signals to modulated light signals and back at Tb/s (1012 bits per second) speeds.

Data traffic is increasing at extraordinary rates whilst businesses and consumers require ever faster data access. This is driving significant demand for smaller, cheaper, faster, scalable photonic chips that can deliver against datacentre technology requirements and network developments for 5G and beyond. Potential markets are global – the COVID-19 pandemic has shown the worldwide need for highly robust, high capacity and speed data infrastructure and communications.

The Group’s equity holdings are in four high growth technology clusters comprising: artificial intelligence, robotics and big and sparse data; pathogens and cell imaging; food and agritech; and engineered particles and materials. We believe that Frontier IP represents an excellent opportunity for investors to gain exposure to early-stage technology companies, based on leading edge IP, which meets the needs and demands of international markets.

Of the 19 portfolio companies that Frontier IP has stakes in, a number are at a point of acceleration in commercial development, paving the way for a significant step up in valuation or a potential exit – they are at “inflexion point”. A number, like CamGraphIC, have global potential and could provide significant future valuation upside. Just one such example within the Frontier IP portfolio is Exscientia, which has developed an artificial intelligence-based drug discovery technology company. On April 28th, 2021, Exscientia completed a US$225 million Series D funding round led by SoftBank’s Vision Fund 2i. This followed a $100m Series C funding round completed in March 2021 and led by Blackrock.

Although Frontier IP has yet to have an exit to crystallise cash value, and the timing and value of potential exits is hard to assess, given the number of companies in the Frontier IP portfolio now at inflection points, such as Nandi, TVG, Pulsiv and Exscientia, this is becoming a real possibly.

As a result, we believe the shares offer distinct valuation upside potential. Buy

#Indicates VSA house stock.

All disclosures and supporting charts can be found in the PDF version.

Phil Smith, Research Director, Technology | T: +44 (0)20 3617 5187 | E: [email protected]

VSA Capital Research | T: +44 (0)20 3005 5000 | E: [email protected]

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