Harris & Harris Group: Compelling Value In Nanotech

| About: Harris&Harris Group (TINY)

We have just published a full research report on the Harris & Harris Group (NASDAQ:TINY), but here are the key highlights.

  • The past year was eventful for Harris & Harris Group (H&H), with the company experiencing five liquidity events and completing four new equity investments and four venture debt deals. The increased level of activity at H&H comes at a time when nanotechnology is entering a new phase of evolution – one that promises a significant acceleration in nano-enabled product commercialization activity and wealth creation.
  • 2011 was a year of nano-enabled breakthroughs and H&H portfolio companies were at the forefront of several of them. Last year witnessed the first U.S. commercial passenger flight powered by biofuel (Solazyme), the sale of the first quantum computer (D-Wave Systems), the introduction of powerful LED arrays (Bridgelux), and the promise of new vaccines and therapies to battle cancer and other life-threatening diseases (BioVex). We see 2011 as a prelude of much bigger things to come in small technology.

  • Two H&H portfolio companies – Solazyme (SZYM) and NeoPhotonics (NYSE:NPTN) – completed successful IPOs last year while two others were acquired – BioVex by Amgen and Innovalight by DuPont. These liquidity events showcase the capabilities of H&H’s investment process to identify promising nanotech companies that can generate significant value over time.
  • Studying H&H’s current portfolio, we see prospects for additional liquidity events in the months ahead. Late-stage portfolio companies Bridgelux and Metabolon – both profiled last year in previously published Research 2.0 reports on H&H – appear to us as likely candidates for public offerings within the next 12-18 months. Other mid- and early-stage portfolio companies are attractive acquisition candidates.

  • In this report, we take a closer look at two of the four new H&H portfolio companies: HzO and Senova Systems. HzO is pioneering a nanocoatings technology for electronic devices and other applications. There is a large, untapped market opportunity for HzO to offer consumers protection for their electronics against water and moister damage. ZAGG is an investor in the company and its marketing prowess and established presence in the consumer electronics market makes for a potent partnership with HzO. Senova Systems is bringing an innovative, nano-enabled technology for measuring pH to the market that has the ability to be very disruptive.

  • Nanotechnology is flying below many investors’ radar screens. We can see this in the way H&H’s stock is trading currently, which is at a discount to the latest reported NAV of $4.38. From our vantage point, having done research in nanotechnology for over a decade, the years just ahead look far more promising in terms of investment opportunities and expected returns in nanotechnology than at any time during the previous 10 years.

  • Our fundamental analysis of H&H portfolio companies suggests that the company is currently understating the intrinsic value of its portfolio by at least 50%. Historically, the stock has traded at a premium of 2x NAV. We estimate H&H's intrinsic value at around $12 per share, which is a significant premium to where the shares are trading today. Our analysis suggests there is compelling value in TINY today. For investors seeking exposure to nanotechnology, H&H represents a unique and compelling investment opportunity.

    The full research report in available at no cost.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.