Every once in a while, supply can shift the boat too far in one direction, leaving an opportunity for investors who focus on company fundamentals. That may be the case with the Firsthand Technology Value Fund (NASDAQ:SVVC), which people have been considering a play on the Twitter (NYSE:TWTR) IPO.
SVVC is a closed-end fund with 68% of its assets in cash, Facebook (NASDAQ:FB), and Twitter. The total Twitter position is slightly over 1 million shares, absent any additional allotment at the time of the IPO. This sounds like a lot, but only accounts for slightly more than 10% of the portfolio when it was valued before the IPO on Nov. 7.
Using information derived from the Nov. 7 portfolio disclosure, we can calculate the value of each of the portfolio positions:
- Cash: $11.90
- Facebook: $3.31
- Twitter: $2.71
- Other private companies: $8.37
- Total NAV: $26.29
Buying stock in recent IPOs is a dicey game at best, so why not stack the deck in your favor? Despite having a successful IPO, shares in SVVC are down 6% at $22.25. Why is this? I can only speculate that professionals looking to get exposure to Twitter are rolling out of the position and buying shares in the underlying stock.
A close look at the impact of the IPO on net asset value demonstrates the opportunity:
- At current prices, the fund would be trading at a 15% discount to its stated net asset value. Despite Facebook's CFO making a verbal misstep during the recent earnings conference call, quarterly results were considerably better than expected and are likely to be in coming quarters.
- The oversubscribed IPO adds to the net asset value going forward. According to the Nov. 7 press release, the Twitter position is being valued at $24.36. This wasn't a substantial discount to the top of the IPO range, but the first trade was considerably higher.
If Twitter's share price settles in at $45, it would be an incremental $2.41 to SVVC's net asset value. Using these numbers, the stock would be trading at a discount of 22% to NAV. Could the rest of the positions in the portfolio be bad enough to warrant this much of a discount? The next two largest companies in the portfolio both look promising. Note that each of the private company positions are recorded at cost.
- IntraOp Medical (OTC:IOPD) accounts for $2.23 of the NAV and its key product, the Mobetron, has received favorable reviews in the treatment of breast cancer in a European study and is being used in 4 US hospitals according to the American Association of Physicists in Medicine.
- Aliphcom accounts for $1.10 of the NAV and makes the popular Jawbone bluetooth headset accessories. A key emerging market for this company is activity tracking through a bluetooth-based wristband that integrates with health applications for activity, calorie, and sleep tracking. AliphCom is an early stage company with 28 employees and $1 million in sales, according to InsideView.
Other positions account for less than 3% of the firms' net asset value and are private companies with stable valuations, similar to IntraOp Medical and Aliphcom. Considering the sizable discount from the post-IPO net asset value, this appears to be a good way to get access to two of the top names in social media at a discount to today's fair value.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.