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 (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.