Net cash on the bal­ance sheet and a 32pc dis­count to net as­set value: IP is a hold

As a backer of tech start-ups it is more risky than most but some of IP Group’s in­vest­ments are be­gin­ning to pay off, writes Russ Mould

The Daily Telegraph - Business - - Business - Russ Mould is in­vest­ment di­rec­tor at AJ Bell, the stock­bro­ker Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­ questor­rules; twit­

THE sale of a fi­nal stake in Ceres Power for seven times its cost price, con­tin­ued pos­i­tive devel­op­ments at Ox­ford Nanopore (in­clud­ing adop­tion by the NHS of the LamPORE Covid-19 test) and record cash re­al­i­sa­tions from its port­fo­lio of in­vest­ments dur­ing the first half of the year all sug­gest that this col­umn can keep the faith with IP Group.

The shares have al­ready risen by more than a quar­ter since our buy tip in Novem­ber last year and there could be more to come.

The FTSE 250 con­stituent in­vests in, and works to com­mer­cialise, the in­tel­lec­tual prop­erty de­vel­oped by Bri­tish uni­ver­si­ties.

The well-doc­u­mented tra­vails of one well-known fund man­ager may have put many peo­ple off in­vest­ing in earlystage com­pa­nies for life and IP Group is not suit­able

for all in­vestors – there is no div­i­dend and there are also clear cap­i­tal risks as­so­ci­ated with in­vest­ments in young firms. They can ei­ther sim­ply fail or re­quire fur­ther in­vest­ment and soak up more cash if they make progress, while even suc­cess­ful in­vest­ments can take a long time to re­alise their po­ten­tial. How­ever, the port­fo­lio is pro­gress­ing well, as shown by both £35m of net gains on dis­posal in the first half com­pared with last year’s losses and the 3pc in­crease in net as­set value (NAV) per share to 108p.

The bal­ance sheet has net cash and the shares trade at a 32pc dis­count to NAV. That pro­vides some pro­tec­tion against losses and the port­fo­lio of more than 120 life sciences and tech­nol­ogy firms is un­likely to be too in­flu­enced by the do­mes­tic econ­omy, no mat­ter what it does in the com­ing months. There is no yield and earlystage firms are risky by their very na­ture but brave, pa­tient in­vestors can keep back­ing IP Group. Hold.

Up­date: Spirent

While all seems to be go­ing well at IP Group it in­creas­ingly feels like this

Fan­tasy Fund Man­ager

Pick five or more stocks to make the big­gest pos­si­ble gain in three months and win the £20,000 first prize tele­­tasy-fund col­umn got its wires crossed with an ini­tially down­beat view on Spirent, the tele­coms equip­ment test­ing spe­cial­ist, in Fe­bru­ary.

The com­bi­na­tion of a punchy val­u­a­tion, as ev­i­denced by a fore­cast price-to-earn­ings ra­tio in the midto-high twen­ties, ques­tion marks over tim­ing in re­la­tion to 5G mo­bile net­works in light of the de­bate over Huawei’s role in them and a steady slide in earn­ings fore­casts put us off, for all of the com­pany’s tech­ni­cal prow­ess and its debt-free bal­ance sheet.

So much for that the­ory, as the shares have risen by more than a third. De­spite a bit of a dip in Amer­ica in the spring, Spirent’s over­all or­der in­take rose by 6pc in the first half of the year and mo­men­tum feels strong.

De­spite a hir­ing spree, in sales and mar­ket­ing in par­tic­u­lar, first-half prof­its soared by more than 90pc and the com­pany even raised its div­i­dend by 12pc.

Most tellingly, earn­ings es­ti­mates are ris­ing again. An­a­lysts hoped for earn­ings per share of 9.1p for 2020 in Fe­bru­ary but the con­sen­sus es­ti­mate has since been chalked higher to 10.8p. One thing this colum­nist has learned in his 30 years or so in the mar­kets is that it is rarely smart to be bear­ish on tech stocks when mo­men­tum in earn­ings fore­casts is strongly pos­i­tive.

The net cash on the bal­ance sheet of­fers some pro­tec­tion too and our only nig­gle re­mains that fore­cast p/e ra­tio, which is still around 28.

Such a premium rat­ing could cap near-term re­turns but Spirent is a key sup­plier in what should be a ma­jor, multi-year up­grade cy­cle for mo­bile tele­coms net­works and the long-term pic­ture does look bright, es­pe­cially as the chief ex­ec­u­tive, Eric Updyke, is work­ing to en­hance the per­cent­age of sales that are re­cur­ring.

Our view to avoid the stock has been proved wrong and only the val­u­a­tion pre­cludes a buy stance. Shrewd hold­ers can af­ford to be pa­tient. We up­grade to hold.

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