Wednesday, November 8, 2017

It Is About Time Someone Wrote About This Company...

Being a blogger and yet an investor of this company, I met Reyna at the Invest Fair 2017. She is the Financial PR rep office of The Trendlines Group Ltd (aka Trendlines).

Even though she is not a direct rep of Trendlines, she was able to answer my questions very clearly. This was unlike the other companies there whose employees are unable to answer some of the simple question I posted.

She impressed me with her understanding of the company and I immediately went back and bought Trendlines' share – a small portion but this is a start.

Then 1 week later, she actually invited me to Trendlines' management briefing. I agreed straight away.

So guess what happens after the briefing?

I bought more of Trendlines after the briefing.

The reason is because despite having 2 CEOs, Todd Dollinger and Steve Rhodes, they seem to be able to complement each other very well. In addition, they were upfront, honest and were able to articulate their strategy very well to the audience that day.


Profile In Short (As per their website)

The Trendlines Group is an innovation commercialization company. Trendlines invents, discovers, invests in, and incubates innovation-based medical and agricultural technologies. As intensely hands-on investors, they are involved in all aspects of our portfolio companies from technology development to business building. They invest principally through their incubators: their two Israeli government-franchised incubators, Trendlines Medical and Trendlines Agtech, their Singapore incubator, Trendlines Medical Singapore, and their in-house innovation center, Trendlines Labs. Simply stated, they create and develop companies to improve the human condition.

How did it fare against Fundamental Scorecard?

No information via the Ultimate Scorecard due to the company being listed less than 5 years.

Then why did I still buy them?

*Didn’t you already said that you should stick to your Ultimate Scorecard strategy in the previous post!

1. CEOs have been buying

Both of the CEO have been buying the shares of Trendlines since the start of 2017.

2. Strategic Review and Dividend Policy

The CEOs decided to reduce their salaries as an example of expense reduction. I will say this is very very interesting and they set an example across the company.

Trendlines also propose a dividend policy. As much as I will say their dividend policy is a bit confusing, but it is better than having none! The shareholders have been asking the company to pay dividend since they were listed, and at last, their wishes were answered!

3. Consistent Updates of Their Portfolio Companies

Seriously, if you are really interested in their portfolio companies, then you should go and read their updates. Trendlines do update on a monthly basis on their “Most Valuable Portfolio Company” and “10 Companies to Watch”.

Once you read their updates, you will be amazed to know what their portfolio companies are making!

4. They have Almost “No Liabilities”.

In their 2nd Quarter, the company provided a FAQ.

In the FAQ, they explain that, “…Although reported as debt, about 99% of our long-term liabilities are non-recourse and, as such, are conditional debt– coming due and payable in cash only when certain value-building events occur. Our two largest items in this section, loans from the IIA and deferred taxes, only come due upon successfully exiting portfolio companies. If we write off or write down a portfolio company, the part of our long-term liabilities attributable to that portfolio company is also written off or written down.

There are three main long-term liability items:

1. Roughly $2 million of our long-term liabilities as at 31 December 2016 are the long-term portion of Deferred Revenues, which, as explained above, represent our commitment to provide two years of services to some portfolio companies in exchange for shares that we received.

2. Just over $4 million of our long-term liabilities as at 31 December 2016 are made up of Loans from the IIA. This debt is primarily comprised of non-recourse loans received from the IIA under an old funding program, and are presented at fair value. Each loan was granted in regard to a specific portfolio company and is only repayable if we exit from that specific portfolio company for which the loan was received. This method of funding by the IIA is no longer in effect and IIA funding is now given as a grant directly to the portfolio company and not through our balance sheet.

3. The largest part of our long-term liabilities is Deferred Taxes, which at 31 December 2016 was approximately $12.5 million. Deferred taxes derive mainly from the difference between the carrying value and tax basis of our portfolio companies and are recorded mainly when there is an increase in the carrying value of our investment in portfolio companies. These taxes only become due upon a taxable event, when we sell all or a portion of our holdings, such as in the event of an exit. When the value of a portfolio company increases or decreases, the corresponding deferred tax liability will increase or decrease accordingly. If we write off or write down a portfolio company, the deferred taxes attributable to that portfolio company, are also written off or written down.”

At the end of the day, many of the liabilities are repayable only when they exit an investment or sold off a portfolio company.

So if there is no exit, there will be no liabilities payable. Furthermore, it seems that their exits have been very profitable.

During the briefing, it was stated rather explicitly that, in the event Trendlines intend to exit/written off a portfolio company, it will be done at a very early stage so that not a lot of liabilities are recorded.

5. Strategic Partner

Trendlines also have a major strategic partner in B Braun Melsungen AG.

As per Wikipedia, “B. Braun Melsungen AG is a German medical and pharmaceutical device company, which has offices and facilities in more than 50 countries. Its headquarters are located in the small town of Melsungen, in central Germany. The company was founded in 1839 and is still owned by the Braun family.”

6. Trendlines Innovation Labs

Other than the portfolio company, Trendlines also have its own innovation labs. Any product that is created by the lab will not be able to be shown in the balance sheet as there is no value to it yet.

However, once it has signed up some contract or sold some royalties, they will the information recorded in the balance sheet.

This also meant that there could be hidden value in this company that has yet to be revealed.

7. Expansion into China

Trendlines have currently expanded into China. In my own opinion, China has been a very innovative country with the uprising of BAT. However, in my own opinion, for medical devices, they seem to be still lagging behind. I believe this will be the next catalyst for Trendlines in the next few years.

But what about the risk?

The main risk we should take note of is that the how the valuation of each portfolio company is calculated. 

Although this was explicitly explained during the briefing and within the FAQ, but I still have my reservations. On the other hand, based on Trendlines's management experience, it seems like they were mostly able to make a significant gain on their exits.

Another concern I have is if any of the portfolio company that were write off were explicitly stated.

In Short

My conclusion on Trendlines is that it is hard to measure the company quantitatively due to its hidden value. But qualitative-wise, the company does have many positive points and it seems to be expanding in an exponential way.

Finally it is important to note that their product are eventually biomedical/bioagri products, which will definitely have a use if it is produced and market in the right way.

And... I bought more of this counter today!

Current Price: $0.165 as of 8 Nov 2017.

Please do your own due diligence before you invest in this stock. 

Do note the author is vested in this counter/company at an average price of $0.153.

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