What's My Current View On The Trendlines Group Ltd?

This article may have came a bit too late.

I felt I have to write another article about The Trendlines Group Ltd (Trendlines) after my last post on them, as well as my very bold estimation of Trendlines on IN.

Screenshot from IN

But since the last post and estimation, Trendlines share price has been on a downtrend on a prolong period.

Screenshot from IN

I am not sure if the post or estimation have influenced anyone to purchase Trendlines. Nevertheless I still felt that I had to be responsible and thus, I will write out my current thoughts on Trendlines.

First of all, I will like you to know that I am still vested in Trendlines (about 2.5% of my portfolio).

Why am I still vested? If you had read my previous post on Trendlines, other than point 1*, all the other positive points are still relevant. Some of these points, as elaborated below, have become even more advantageous!

*CEOs did not continue to purchase Trendlines and the company also did not made any share buybacks.

1. Their dividend policies have become clearer with recent new on Stimatix. Stimatix will provide recurring income for Trendlines and in return dividend for the shareholders. Do note that Trendlines owns 28.2% of Stimatix and a payout ratio of 90% of dividend payments received from royalties.

2. Collaborators! Other than B Braun Melsungen AG, Trendlines also have many other extensive partnership collaborators!

Trendlines Investor's Powerpoint

3. Companies born out of Trendlines lab are not within its balance sheet yet! These companies will eventually bring in profit and will definitely boost its asset within the balance sheet. Thus, the balance sheet is actually still understated!

Trendlines Investor's Powerpoint

4. News, news and news! Recently, an IN friend have actually found some news on the Trendlines' portfolio companies that are not explicitly announced and here they are:

- Cold Plasma Bio-welding Device Market – What Factors will drive the Market in Upcoming Years?

- ElastiMed Chosen by Horizon 2020 to Receive US$1.6M Grant

- Leviticus Cardio Confirms the Successful Completion of a Long-term Chronic Animal Study

Regardless of the above positives, the RISKS that I stated in the previous post still exists too: (1) Overstating of the value of their portfolio company and (2) having failed portfolio companies being written off in future. This could produce losses that will definitely impact the share price negatively.

So what is the Fair Value?

Recently, many of you will have notice the changes in how I view a company recently. I will always try to look for a REASONABLE fair value. For Trendlines' share price, the management had compared against other industry comparables as per its investor's powerpoint slide.

Trendlines Investor's Powerpoint

But I felt the share price calculation should be based on dividend instead. This is because I felt dividend will eventually become the main catalyst for Trendlines over the next 2 years.

So the amount of dividend I calculated is....0.3 cents! This is only about 2.5% dividend yield based on the current share price.

This is based on the estimation of the following -

1. Dividend Payout of 90% of dividend distribution of about US$800k

2. Dividend Payout of 40% of an Exit Event where the net cash after tax distributable proceeds paid to Trendlines for the financial year is at least US$2 million.

Finally, one must also take note of the following taken from the recent annual report and announcements:

1. In August 2016, Medical received a dividend distribution from the Portfolio Company in the amount of approximately 897, the dividend distribution representing Medical’s share of a portion of the cash consideration received from the Licensee.

2. In addition to a dividend which was received subsequent to the initial closing in November 2014, Trendlines Incubators Israel Ltd., the Group’s wholly-owned subsidiary, has additionally been paid approximately US$1.6 million in dividends, to date, upon Stimatix’s completion of the relevant milestones.

3. On September 29, 2016, the Group sold its holdings in E.T.View (including options). The Group received consideration in the amount of 3,700, of which 2,100 is recorded in gain from disposal of investments accounted for under the equity method and 1,600 in gain from change in fair value of investments in Portfolio Companies.

4. In June 2017, the Group completed the sale of its holdings in Biosight LTD. The Group received consideration in the amount of 1,300 and recorded realized gain from change in fair value of investments in Portfolio Companies in the amount of $1,200.

5. On November 13, 2017, the Group completed the sale of its holding in MitrAssist Ltd (“MitrAssist) for a total consideration of approximately 1,150. The Group recorded realized gain from change in fair value of investments in Portfolio Companies in the amount of $1.1M as well as financial expenses in the amount of $0.5M with respect to repayment of the IIA loan relating to MitrAssist.

In Short

I understand that the current estimated dividend yield is quite low. Not even 3%. It could get even lower since the last few exits Trendlines had made is less than US$2 Million. Thus, these are more of the negatives that I believe investors should take note.

BUT I will still stay vested and may even buy more if the share price drop even MUCH MORE.

This is because I believe in the company's growth and it takes time for the revenue to grow. In the meantime, the dividend can "comfort your continuing patience".

I must also state that Trendlines has "not" yet given any dividend and their dividend policy must have well-thought through prior to announcing. Therefore, their current exits events could possibly be used to support their current operations, rather than for dividends. Nevertheless, Trendlines is not the usual business model and investors should not really used their current understanding to define this firm.

Investors will just have to wait for Trendlines to grow for at least 2 years before it become the multibagger we are waiting for.

Simple Investor SG and I will be having our next Coffee With Us on 17 April 2018. If you are interested in the event, do sign up via this LINK. We look forward to meeting you!

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