Trendlines Group - DBS Research 2016-04-22: Limited upside potential after recent rally

THE TRENDLINES GROUP LTD 42T.SI

Trendlines Group - Limited upside potential after recent rally

Trendlines (TTGL) is a seed-stage investor in medical device developers and agriculture technology start-ups.
Increasing ageing population and growing demand for sophisticated medical devices will spur investments in medical device developers.

Rising global demand for food and clean water will help attract funds for Agtech.
The stock has rallied 43% since we initiated its coverage on 11 Feb 2016, leaving limited upside potential in the near term.

US-based private companies like AirBnB, Uber, Cloudera, and MongoDB have been marked down in valuations by their holding funds recently, signalling a tougher environment for start-ups. As such, we moderate our expectations of growth at TTGL as some of its portfolio companies could be marked down in valuations or exit multiples may shrink, in our opinion.
We conservatively forecast the portfolio value to register 10% CAGR over FY15- 17F versus 16% earlier.

We expect TTGL to successfully exit from one of the three portfolio companies in FY16F.
With net cash of US$19m, TTGL can operate for another two years even if it is not able to exit from any of its investments, in our estimate.

The stock has rallied 43% since we initiated our coverage on 11 Feb 2016.
Based on 1.0x FY16F P/BV (versus 1.1x earlier), our one-year target price is revised to S$0.24 and our new recommendation is HOLD due to limited upside potential.

Failure to exit from existing investments may lead to negative cash flow and losses hurting its book value.
TTGL operates in a high-risk, high-reward technology start-up space and writedowns of portfolio value cannot be ruled out.

Sachin Mittal DBS Vickers | http://www.dbsvickers.com/ 2016-04-22

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