Equity market researcher Independent Investment Research has given out-of-favour LIC Chapman Ltd its backing, following a restructure of its management team and investment portfolio.
Chapman is an investor in start-up and early stage companies. Its strategy is to investment in a small number of companies, take a substantial stake and get involved in advising management.
Chapman Ltd is a listed investment company, trading on the Australian Securities Exchange. Its stock traded above $3 in 2008 and as high as $2 in 2012 but since then it has been abandoned by investors and trades between one and two cents a share.
Independent Investment Research has put a target price of 2.7 cents per share on the stock. It says the company’s historic performance, based on the work of a different management team and investment philosophy, “does not reflect the future potential for the group.”
The current team includes executive chairman Peter Dykes, who led the technology advisory practice of a major accounting firm, and executive director Anthony Dunlop, who has a 25-year finance and corporate advisory background.
Chapman has fully divested its legacy portfolio and currently has four investments:
- 20four Media Holdings, a developer of a mobile digital media app for the sports industry, which has access to “a large inventory of athlete generated content”;
- Digital4age, a technology incubator with a portfolio of investments;
- Syn Dynamics, a developer of plasma gasification technology for the conversion of industrial waste to syngas, which signed its first customer in December last year; and
- Fantasy Sports, a developer of gaming technology.
At the release of its December 2016 financial report, Chapman stated its net tangible assets at 3.66 cents per share, based on an independent review undertaken by William Buck Corporate Advisory Services.
IIR says: “The focused investment portfolio has the scope for meaningful valuation upside. The companies are expected to deepen their market penetration, report their initial commercial sales revenues, enhance industry recognition and generate customer growth.
“Each investment has proprietary and niche technology which differentiates the business from its competitors with an innovative product offering.”
IIR says one of the strengths of Chapman’s new management team is that it is actively involved with each of its investee companies, providing management skills, corporate advice and business services to accelerate the path of each investment to commercialisation and revenue growth.
The business model involves the recycling of funds from mature businesses to new early stage investments. Chapman’s exit strategies involve trade sale or initial public offering anywhere from 12 months to five years after initial investment.