The Trendlines Group

[mscheng13]

I don't understand, why would anyone subscribe to the rights when they can buy from the open market at a lower price?

[Shiyi]

yeah its damn weird. im damn puzzled. ive some at 11c. wonder how market is going to react.

Refer to the links.  The response from Trendlines to the "unusual" pricing of rights issue.
The board claims that the rights issue is to satisfy those who want to buy in bulk. 

https://links.sgx.com/1.0.0/corporate-an...ueries.pdf

[BRT]

useful query and useful reply, thanks. it;s actually quite helpful if companies get queried regularly like half yearly haha.

[weii]

CEO of Trendlines Agrifood Fund, Nitza Kardish PhD., and four portfolio companies, namely Hargol™ FoodTech Ltd., ViAqua Therapeutics Ltd., AquiNovo Ltd., and Biofishency Ltd., will present at the Israel Singapore Agri-Food Exchange happening on 3-4 February 2021.

https://us02web.zoom.us/webinar/register...d4FFIV1jcw

AquiNovo develops proprietary, non-GMO, non-hormonal, specialty feed additives that increase fish yield and revenues whilst improving fish feed utilization leading to a reduction in feed cost. The value proposition for fish farms is thus higher fish yields at an increased profit. First products target tilapia (second largest farmed fish for human consumption) and future products will target additional species such as salmon, carp and shrimp. AquiNovo will sell its products to feed producers to be incorporated into their feed and sold to fish farms.

https://www.trendlines.com/company/aquinovo/

[weijian]

Finished reading Sebastian Mallaby's The Power Law book and was intrigued to look at SGX's very own startup nation The Trendlines Group.

Since it IPO-ed in 2015, there were subsequently 3 more capital raising - a total amount of 57mil was injected into the business. The OCF (operating cash flow) and ICF (investment cash flow) from 2015 to 2022 as below:

(in mil USD)
Year Total Equity OCF         ICF
2022 96,986       -9,603      -5,305 7mil capital injection (NAV = US$0.11)
2021 103,086      -8,342     9,099
2020 96,316       -5,934      3,214
2019 99,534       -5,483     -1,380 14mil capital injection
2018 85,958       -6,880     -625
2017 92,211       -6,887     -58      10mil capital injection
2016 78,167       -7,787     -1,906
2015 84,124       -5,160     -1,522 26mil capital injection (NAV = US$0.15)
Total                 -56,076    1,517  57mil in total capital injection

Since their portfolio of investees are under fair value (valued based on subsequent funding series), the equity/NAV would not be a bad rough estimate of its actual portfolio value. Over the last 7 years, NAV has actually declined from USD0.15 to USD0.11 --> the investment record of The Trendline Group doesn't look too good.

Over this same period, 56mil of operating cash flow has left the company, and this almost coincides with the total amount of capital raised (57mil). No dividends has been declared in this period with a net 1.5mil investing cash flow in their portfolio turnover (thanks to a timely exit in 2021)

The remuneration of the 2 chairman and their KMP looks pretty high. Is that where most of the OCF has gone to? After burning through all the capital they raised in the last 7 years, there is nothing to show in terms of their investment record (negative NAV growth over 7 years)

With AR22 indicating a shift in their "working business model", let's hope there will be better times to come for shareholders:

In our 2021 annual report, we asked the critical question “is  the Trendlines business model working?” and we answered with a resounding “yes”. We pointed out that, at the time, we had some 12 more-advanced stage portfolio companies, and we noted that the number of mature portfolio companies has  been growing from year to year. With this in mind, in November  2022, we announced our strategic transformation plan.  The plan was adopted to give even more attention to our advanced stage portfolio companies and to help those  portfolio companies realize significant exits. In accordance  with the transformation plan, our focus is wholly on developing our existing portfolio to maximize exit proceeds. As a result  of this shift, we will not invest in new portfolio companies  during FY2023.

[ghchua]

Hi weijian,

Few points to note.

One, NAV declining doesn't mean that Trendline Group investing record is no good. It might be because they have raised capital from the market at below NAV and therefore diluted the NAV numbers. There is a difference between these two.

Two, portfolio value and cumulative exit proceeds on average had increased since listing.

Third, non-IFRS value of portfolio companies are higher than fair value numbers. You should also take those value into consideration instead of the balance sheet valuations.

As for dividends, well they have a dividend policy in place but unfortunately, they have not met the payout policy yet. Hopefully, we can have some big exits in order to have some payouts. One must be patient as this is a company that invest in start-ups.

[weijian]

hi ghchua,

VC investing is supposed to follow the 80:20 rule... If the guys are good enough, it shouldn't be raising capital at below NAV, isn't it? Even though, the dilution from 2016 to 2022 is close to 80% (2016: 506mil shares, 2022: 893mil shares). What does the dilution says about how the capital markets have judged it? Where did all the raised capital went? The combined stake that the 2 EDs owned of the company, is ~3mil USD at current prices. They will take home more from their salaries than their combined stakes after 2 fiscal years.

VCs do not fund startups in their entire lifecycle. Rather they do a stage by stage financing where money raised in this round is just enough to complete their roadmap of defined milestones. If the startups overspend or fail to meet milestones, then they will have problems getting new funds (at higher valuations) from new/existing investors in the future. So this natural selection and market discipline is a very robust way to value these startups. To be honest, the description of how they do their non-IFRS valuation sounds all foreign to me and hence I am not able to appreciate its robustness and whether it is realistic for it to be realized in the future.

[ghchua]

Hi weijian,

Unfortunately, if you look around at SGX listed VC companies, most (if not all) are trading below NAV. It is not specific to The Trendlines Group. Others with longer listing track record like Hotung, TIH etc are also in this situation. Then the question is really - Are you not going ahead to raise any funds from the market then?

Hopefully, with the new strategy that they are implementing and not to invest in new portfolio companies in FY23, we can see a more steady and improving NAV.

I am not saying that The Trendlines Group is an excellent company. It has its own issues and you have pointed out some of them. But rather, I am saying at current valuation and the discount that the market is giving to you, it might be a good investment at a right price.

[weijian]

Hi weijian,

Unfortunately, if you look around at SGX listed VC companies, most (if not all) are trading below NAV.  It is not specific to The Trendlines Group. Others with longer listing track record like Hotung, TIH etc are also in this situation. Then the question is really - Are you not going ahead to raise any funds from the market then?

Hopefully, with the new strategy that they are implementing and not to invest in new portfolio companies in FY23, we can see a more steady and improving NAV.

I am not saying that The Trendlines Group is an excellent company. It has its own issues and you have pointed out some of them. But rather, I am saying at current valuation and the discount that the market is giving to you, it might be a good investment at a right price.

hi ghchua,

You are right to point out that most are at discounts to NAV and so the next logical thing to do...is to figure out which warrants the discount, and which doesn't. Or if it does warrant the discount, is still a way for OPMIs to extract value?

So let's say that I decide to allocate 2% of my portfolio to VCs. I will probably allocate the full amount to Hotung (or even be willing to average upwards at more expensive valuations on Hotung), than divide the allocation between Hotung and The Trendlines Group (and average downwards on the latter at cheaper and cheaper valuations)

[weijian]

A strategy change in 2022 did not seem to have reap much rewards in 2023. Of course, it should all be blamed on the Israel-Hamas war. Current equity has been revalued and it is even lower than its previous ATL (all time low) in 2016. Mr Market looked to be right on cue again.

Nonetheless, The Trendlines did do something right in FY23 and that was to raise new equity (total 6.4mil in proceeds) at ~0.0888usd/share, that is higher than its end FY23 NAV of 0.07usd/share. I suppose this is 1 great achievement because it had always been raising new equity below NAV.

(in mil USD)
Year Total Equity OCF        ICF
2023 70,892        -2,695    -3,745 6.4mil capital injection (NAV = US$0.07)
2022 96,986      -9,603      -5,305 7.5mil capital injection (NAV = US$0.11)
2021 103,086      -8,342    9,099
2020 96,316      -5,934      3,214
2019 99,534      -5,483    -1,380 14mil capital injection
2018 85,958      -6,880    -625
2017 92,211      -6,887    -58      10mil capital injection
2016 78,167      -7,787    -1,906
2015 84,124      -5,160    -1,522 26mil capital injection (NAV = US$0.15)
Total                -58,771    -2,228  64mil in total capital injection