The Trendlines Group - NRA Capital Research 2018-06-28: Business Growth Remains Unappreciated

The Trendlines Group - NRA Capital Research 2018-06-28: Business Growth Remains Unappreciated THE TRENDLINES GROUP LTD. SGX: 42T

The Trendlines Group - Business Growth Remains Unappreciated

Full house at “Zoom In On Trendlines” event

  • Trendlines organised a “meet the senior management” session at the JTC Launchpad on 27 June 2018. The event was well attended by over 70 participants, including both individual and institutional investors.
  • At the event, the group CEOs and six key executives, including the CEOs of Trendlines Incubators Israel and Trendlines Labs and the group’s VP of business development, answered questions fielded by investors and shareholders in a panel discussion. The head of innovation from B. Braun was also present at the event as a guest.

Lessons learnt on building a start-up ecosystem

  • The session focused on Trendlines’ experience in incubating start-ups and how it creates portfolio value. Each year, the group reviews hundreds of leads and only 1% get selected to be a Portfolio Company.
  • An interesting revelation is that the group not only sources for investments from Israel, but also from Singapore, Malaysia, Australia and Thailand by leveraging on its presence in both Israel and Singapore. Following the panel discussion, two Portfolio Companies Zygofix and InterVaal also presented about their innovations.

Staying committed to shareholders

  • Trendlines was invited to Singapore to run a course to a healthcare group and it decided to take the opportunity to organise a meeting with its stakeholders during the same trip. 
  • Over the past 12 months, the management has implemented several measures that demonstrated its commitment to shareholders. For instance, the group announced a plan in October 2017 to reduce FY18 operating expenses by US$1.3m. In April, the group’s CEOs won approval from shareholders to tie their 2018 bonuses to defined targets and stipulated limits.

Growth, exits and royalties to drive value discovery

  • Soon, we will hear about the launch of B. Braun’s new ostomy product licensed from Portfolio Company Stimatix GI (also known as Most Valuable Portfolio Company). Royalties from the sale of this product will supplement operating cash flows.
  • Some Portfolio Companies have also clocked good momentum in 2018. BioFishency recorded sales of US$0.8m in 1Q18 following sales of only US$0.55m in 2017. Likewise, EdenShield is targeting sales of US$2.5m for 2018, following sales of US$0.45m in 2017.

Trading at steep discount to book value

  • Exponential growth among Portfolio Companies supports expectations of future exits. At S$0.119, Trendlines trades at 0.59x its book value as at 31 March 2018. 
  • Market capitalisation of S$72.4m is backed by cash net current assets of US$12.4m (S$16.6m) and a portfolio value of US$97.4m (average of US$1.16m per Portfolio Company, excluding Stimatix GI) as at 31 March 2018.
  • In this update, we reiterate that Trendlines remains undervalued and rate Trendlines OVERWEIGHT with a high-average return and average risk view.

Liu Jinshu NRA Capital Research | 2018-06-28
SGX Stock Analyst Report OVERWEIGHT Maintain OVERWEIGHT 0.225 Same 0.225