RiverFort Global Opportunities (RGO) is an AIM listed investment company which invests via venture debt instruments in small cap companies across a range of sectors and stock exchanges. Returns are generated for shareholders via a mix of interest and fee income on venture debt instruments, along with equity upside from direct equity investments, warrants and conversion rights. More recently, RGO has been looking for further upside potential by investing in high impact growth companies, at the pre-IPO stage, with a particular bias towards the technology sector.
Venture debt portfolio provides stability & upside potential
RGO provides capital in the form of venture debt and/or equity-linked debt instruments such as convertible loans. Unlike conventional debt financing methods, venture debt generally does not require collateral because growth companies generally do not own substantial tangible assets that can be used as such. Investors are compensated for this by receiving equity warrants in the company to balance the higher-risk nature of the debt instruments. This form of financing provides RGO with both downside protection and equity upside potential, along with a stream of income coming from debt interest and arrangement fees. The company typically receives warrants which can significantly increase the level of investment return.
Focus on high impact pre-IPO investments provides further upside
Recognising the high valuation multiples currently being achieved in public markets, RGO has been increasingly looking to make investments in companies operating in fast growing industries, such as technology, at the pre-IPO stage of their development. This is to benefit from valuation increases associated with subsequent sales or IPOs. Two such investments have been made to date, in digital assets and crypto technology company, Pluto Digital Assets and Artificial Intelligence (AI) based cyber-security business, Smarttech247. Both companies are planning to go public in the coming months, providing likely near-term valuation uplifts along with long-term growth potential.
Significant upside remains despite share price rise
We believe that RGO’s current market valuation is completely backed by its existing assets, with minimal value being attributed to its warrant portfolio (including warrants in Kodal Minerals, Pires Investments, Canadian Overseas Petroleum, and Invinity Energy Systems); and the potential upside from the upcoming IPOs of Pluto Digital and Smarttech247. RGO has the potential for significant additional value accretion from: the potential for these two companies to go on and grow their operations and valuations; and the opportunities to exercise and crystalise gains on the warrant portfolio. RGO also offers income attractions, with a dividend yield of 3.53% implied for 2020. We initiate coverage with a stance of Speculative Buy.
RISK WARNING & DISCLAIMER
RiverFort Global Opportunities (RGO) is a research client of Align Research. Align Research own shares in RGO. Full details of our Company & Personal Account Dealing Policy can be found on our website http://www.alignresearch.co.uk/legal/
For full disclaimer information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.
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