Difference Capital gets price target raise at Mackie

A better than expected fourth quarter has Mackie Research Capital analyst Nikhil Thadani raising his price target on Difference Capital (Difference Capital Stock Quote, Chart, News: TSX:DCF).

Yesterday, Difference Capital reported its fourth quarter and fiscal 2015 results. The year saw the company produce a net gain from investments and marketable securities of $12.9-million, a figure that compared favourably with 2014’s net loss of $38.8-million. Management reported that the company’s net asset value rose 16 per cent to $2.01. DCF’s NAV was from $1.73 on Dec. 31, 2014.

“We are pleased with the portfolio’s performance in 2015,” said chief investment officer Tom Astle. “We managed several material exits and shifted the focus of the portfolio to later-stage quality names. In addition, the portfolio generated double-digit returns against a backdrop that saw the S&P/TSX Composite down 11 per cent.”

Thadani says he was expecting Net Asset Value to come in at $1.86 a share, and notes that recent changes at BTI Systems, Scribble Technologies, Vena Solutions and Vision Critical contributed to the NAV outperformance. The analyst expects the upward trend of the company’s stock will continue.

“We expect more exits should help the stock climb higher as value-confirmation for portfolio investments is provided,” says Thadani. “We expect more M&A driven exits (vs. IPOs) to provide value-confirmation over the next ~9-12 months. DCF trades at a ~33% discount to NAV vs. peers at ~30%. We note this valuation gap has meaningfully narrowed in recent weeks. Roughly 2 ½ years ago, DCF traded from ~100-135% of NAV. As the company has hardened NAV and instituted a more disciplined investment process, we expect future exits to unlock additional value and send NAV higher. A higher NAV appears to benefit valuation.”

In a research update to clients today, Thadani maintained his “Buy” rating, but raised his one-year price target on Difference Capital from $2.00 to $2.20, implying a return of 64 per cent at the time of publication.