Difference Capital has 137% upside, says Mackie Research

The potential for M&A driven exits and the monetization of real estate assets in the U.S. have Mackie Research Capital analyst Nikhil Thadani feeling bullish about Difference Capital Financial (Difference Capital Stock Quote, Chart, News: TSX:DCF).

On Friday, Difference Capital reported its Q1, 2017 results. The company lost $785,000 and a net realized gain of $260,000. The company’s Net Asset Value (NAV) was pegged at $7.77 a share.

Thadani says that although there is a natural quarterly erosion of Difference Capital’s NAV in the absence of exits, he is optimistic that a better environment is on the way.

“Canadian tech financing environment appears to be improving, which should bode well for DCF valuation,” says the analyst. “We remain optimistic that a potential re-opening of the Canadian tech IPO window (after ~two years dormancy) should bode well for DCF stock in terms of narrowing the ~50% stock price to NAV discount. Recall, we have previously indicated that we expect a more robust IPO environment to reduce DCF’s stock price/NAV discount. We are hopeful that the recent Real Matters IPO & Shopify (Buy, US$101/Sh target) & Kinaxis’ public market success should encourage more Canadian tech companies to go public. We recently attended an industry event, where Shopify and a VC investor highlighted that company’s approach to its 2015 IPO (aimed at other high growth tech companies) – this event was well attended by numerous exciting private Toronto based technology companies. We remain bullish on Canadian tech and believe that DCF could provide a vehicle to benefit from secular technology growth themes as the Canadian public markets begin to better appreciate innovative technology companies.”

In a research update to clients Friday, Thadani maintained his “Buy” rating and one-year price target of $9.00 on Difference Capital, implying a return of 137 per cent at the time of publication. Thadani explains that he arrives at his value by applying 1x NAV plus tax assets.

More Cantech Analysts