Sigma Technology woos McProf

Has the market missed something at Sigma Technology Group? Back in March it announced a deal with IP2IPO, the intellectual property (IP) company that specialises in linking up with universities in order to commercialise their technology. The shares had an initial flurry but have since settled back pretty much where they were – at 21p. At this level, Sigma is capitalised at just £8 million. If anything comes of its link-up with IP2IPO, it could be worth several times that.

  Sigma came to the market at the top of the dotcom boom with the goal of finding suitable technology investments. It has since mutated into a manager of niche funds – in technology and property – with only a small, residual direct stake in investee companies. But it continues to have a significant involvement in the Scottish market and it is Sigma’s presence north of the border that attracted the Sassenach IP2IPO to pick it as its partner there.

  Sigma has an operation in Edinburgh and has made investments in 12 Scottish companies in the past two years. The funds it manages have a lot of Scots among the investors. They include Bank of Scotland, Scottish Widows and Scottish Enterprise Fife. The company also partners with the Scottish Co-investment Fund.

  IP2IPO has developed special commercialisation deals with five English universities. Now it is using Sigma as a stand-in to repeat that in Scotland. It hopes Sigma will open doors. In exchange, IP2IPO will provide a lot of gen on how to structure the relationships – hopefully to develop businesses that can one day be brought to the market.

  It is the imbalance in the market capitalisations of the two companies that intrigues. IP2IPO is capitalised at over £250 million. Net off the £50 million of cash in its balance sheet and that effectively values each of its university IP relationships at £40 million. Logically, if Sigma could tie up just one Scottish university, that deal would be worth the same £40 million – or around £1 a share.

  It would appear that IP2IPO thinks much the same. As part of the tie-up it invested £361,000 to buy a five per cent stake in Sigma at 20p a share. But it also took an option to subscribe for a further 15 per cent of Sigma at 40p a share at any time up to June next year. By then we should know whether Sigma’s blandishments have been heeded by any of the universities. IP2IPO clearly took the view that news of a successful tie-up would at least double Sigma’s share price.

  There is not a lot of downside to Sigma either. Although net worth is only about half the current capitalisation, the rules relating to the valuation of venture capital stakes mean that is a pretty conservative figure. The property investment business also looks to be going quite well and the company is only selling for around 7.7 times the earnings expected this year by its broker, Oriel Securities. True, there is no guarantee the discussions with McProf will come to anything. But the potential argues strongly for a buy at this level.