“Oxford Nanopore is the third unicorn with a $1-billion-plus valuation to emerge from IP Group’s investments, after Ceres Power and Hinge Health, in what looks like another affirmation of the FTSE 250 firm’s business model, whereby it helps to incubate, nurture and commercialise intellectual property in the fields of life sciences, renewables and technology,” says AJ Bell investment director Russ Mould. “IP Group has sold some its shares as part of Oxford Nanopore’s flotation, where the issue of new stock will have also diluted down its holding, but it still owns a 10.3% stake in the genetic sequencing specialist.
“The £84 million profit on the sale of Oxford Nanopore shares will enable IP Group to supplement its share buyback programme and also continue to invest in its portfolio of prime prospects. It also sets the firm well on the way to a third straight year in which it has realised more from sales of investments than it has put into them.
“In the first half of 2020, IP Group had already realised £111 million from its portfolio, while it backed its investments with a further £70 million in cash.
Source: Company accounts
“The positive momentum across the portfolio can also be seen in how gains on disposal have begun to rack up as some of the investee companies have begun to mature. IP Group’s management clearly feels there is huge potential here, as they sanctioned a maiden dividend alongside the full-year results for 2020 back in early March and also a share buyback scheme, and the proceeds from Oxford Nanopore will top up the pot.
Source: Company accounts
“The valuation uplift from Oxford Nanopore will also help to underpin the valuation of IP Group’s shares.
“At the end of the first half, the company had net assets of £1.44 billion, or 135p a share.
“IP Group’s then 14.5% stake in Oxford Nanopore was in the books at a value of £359 million.
“The company has just booked an £84 million capital gain on the partial sale of its stake and still owns a 10.3% holding – 82.1 million shares – with a book value of £349 million at the flotation price of 425p. That represents an uplift on June’s valuation and Oxford Nanopore’s shares have since raced to around 600p.
“If the price holds there, then IP Group’s stake has a market value of £516 million, for a further £167 million of upside relative to book value, or around 15-16p a share.
Source: Company accounts
“Further growth in net asset value is therefore possible, especially if the other portfolio holdings developed as planned and there is definitely more to IP Group than just its investment in Oxford Nanopore. It owns stakes in 129 companies, predominantly in the UK but also in the USA, Australia and New Zealand, thanks in part to the acquisition over time of Fusion IP, ParkWalk Advisers and Touchstone Innovations. All of those deals added further breadth and depth to the portfolio.
Source: Company accounts
“In some ways the hard work starts here for Oxford Nanopore, as management now needs to deliver on its strategy to justify the £4.8 billion price tag placed on it in the early exchanges after its flotation, and therefore the valuation attributed to IP Group’s 10.3% stake.
“But IP Group also owns stakes in firms that are already listed, including Diurnal, Oxford Sciences Innovation and Mirriad Advertising, and it owns potentially valuable stakes in other firms.
“According to the first-half results for June 2021, the second most valuable holding is life sciences firm Istesso, where a 56.4% stake is valued at £85.6 million, with predictive technology firm Featurespace third (a 19.7% stake valued at £42 million) and digital back and joint-pain clinic Hinge Health fourth. IP’s 2.4% stake in Hinge Health has a book value of £41.4 million.”
“At just shy of 143p, IP Group’s shares are already pricing in some of the uplift to net asset value from Oxford Nanopore, as they trade at a premium to their last stated NAV per share of 135.4p.
“This small premium to the last published figure is a huge contrast to the 50%-plus discount which prevailed when Neil Woodford’s woes compelled his funds to dump 13% of IP Group’s shares so they could raise cash in late 2019, and shows just how far the portfolio has come since.”
