Why Braveheart Investment Group Share Price Will 5x In The New Year
By: Charlie Price
Tags: Stocks, Small Cap Stocks, Covid 19, Investing, Covid 19 Testing

Whilst we don’t usually track small cap stocks, Braveheart Investment Group plc (LON: BRH) caught our eye a couple of weeks ago, and we believe it presents an interesting opportunity with a very favourable risk/reward for a trade now and into the new year. In this post we lay out our investment thesis and why we think this stock could quintuple within the next 6 months from it’s current share of around £0.17 per share.

Braveheart Investment Group, as the name suggests, is a fund management and strategic investor group that acquires stakes in other companies in the hopes of making a profit. What was of interest recently for Braveheart investors is Remote Monitored Systems (“RMS”), a company that Braveheart owned a large percentage of and sold in early November for a significant profit after the company announced news of producing anti-viral face masks very soon. The sale of RMS generated gross cash for Braveheart of approximately £17.35 million, which they recently announced in their half-year results.

This brings us on to why this company initially caught our attention. Instead of reinvesting this cash in other ventures, Braveheart decided to pay out the majority of this cash to shareholders in the form of a 42.75p special dividend. At the time of announcement, this dividend payout was greater than the share price itself of around 35p, causing the price to gap up on market open to 50p and climb steadily to a maximum of around 60p before ex-dividend day. Now that the company has gone ex-dividend, investors are struggling to value the rest of the company, and the share price dropped to around 11p, before climbing to around 26p, before dwindling back down to 17p this week. There has been lots of speculation around this special dividend which includes Braveheart not having any other good use for the cash and therefore the share not worth investing in, and the CEO, Trevor Brown, is trying to extract all of the money out of the company and prepare to wind down and go into retirement.

Now, onto why we believe this speculation is completely wrong, and the reason you are all reading this article. Paraytec Limited is a company that is 100% owned by Braveheart Investment Group, and we think where the most exciting prospect lies for investors. Paraytec has been working with the University of Sheffield to develop a rapid test to identify cancer and viruses. Originally they were interested in the test for detecting bladder cancer in urine, but back in April 2020, it made sense for them to shift their focus onto developing the test for COVID-19. An update back in mid-October announced that they had completed proof of concept trials for the test, and one of the scientists working on the project, Carl Smythe, has been very vocal since on Twitter in his confidence of the success of the test, in terms of speed and sensitivity. Their test can supposedly give accurate results in as little as 5 minutes, something the government has been eagerly seeking for a while now.

Skeptics out there say that with the vaccine now starting to be rolled out, there will no longer be a need for testing mid next year when Paraytec are hoping for mass production of their test. However, we see this as false, as it will take a significant amount of time next year to get the vaccine out across all age groups, and even after that, the need for testing will not go away, and this has been signalled strongly by the government already. As you can see below, Carl Smythe tweeted back at the beginning of September that they were planning on engaging with the government scheme, Operation Moonshot, which has set aside £100 billion, with the aim of expanding testing to 10 million a day by early 2021. It is therefore our belief that after the proof of concept success a couple of months ago, Paraytec have in fact engaged with the government, and we expect an update on this very soon, hopefully by January or February at the latest. This theory aligns with Braveheart returning most of their free cash to investors, as we believe this shows confidence that Paraytec will receive sufficient funding from the government to scale up and mass produce their test. We would not be surprised to see Paraytec partner up with, or even being bought out by a large pharmaceutical company such as GSK, AstraZeneca, etc., if the government decides that their test is good for widespread roll out.

In terms of valuing the company if our investment thesis plays out, the honest answer is that we don’t feel it too important to try and place a precise figure on it at the moment, because at the time of announcement of government approval, we would hopefully receive more information in terms of numbers that we could use to make some calculations. However, at the current share price of 17p, the market cap of Braveheart Investment Group is just under £6.5 million. The share price earlier in the year surged as high as 71p after the RMS announcement that they were looking at producing masks by the end of the year, and we believe this looks like a far more lucrative endeavour and has more long term potential, taking into account the fact that COVID testing will be relevant at least throughout 2021 and most likely into 2022 and beyond, and also that the test they have developed also has many other useful applications. Therefore, we believe that should there be an announcement that Paraytec developed tests will go into mass production, Braveheart share price would very easily and quickly surge to at least £1.00 per share, giving Braveheart a market cap of still only around £37 million, which could be very much on the low side.

Given the fact that Braveheart also has a handful of other investments, and that based on the current share price, the market isn’t really pricing in much of our expectations yet, we like the risk reward ratio of 1:5+, assuming that the downside is the company goes bankrupt, which we also do not see happening given they currently have no debt and are in a sound financial position.

One thing worth noting is that Trevor Brown, the CEO of Braveheart Investment Group, sold 845,000 shares on the ex-dividend day which has spooked investors and halted the rally of the share price. However, this was only approximately 10% of the shares he owned, and he did a similar thing earlier in the year, selling around 1 million shares, only to buy them back cheaper a few days later. We believe that had he wished to unload more shares, he would have done so already and is therefore done selling for now, although it is something to keep an eye on to see if he buys or sells in the next few weeks to give an indication of his sentiment towards the near term prospects of the firm.

Disclaimer

This article does not offer investment advice and nothing in it should be construed as investment advice. This article provides information and the personal opinion of the author for reading by people who can make their own investment decisions without advice. The information contained in this article is not, and should not be read as, an offer or recommendation to buy or sell or a solicitation of an offer or recommendation to buy or sell any securities. This article is not, and should not be seen as, a recommendation to use any particular investment strategy. You should carry out your own independent research before making an investment decision and you should not base any investment decision on the information contained in this article.

The author is long a stock mentioned in this article: Braveheart Investment Group plc (LON: BRH).