I love arriving at a stock early — evidenced by minimal...

I love arriving at a stock early — evidenced by minimal HotCopper activity and thread view counts.

Having IPO'd in 2017, PVL has a mid-length but ultimately unsuccessful listed history as a VC fund making early-stage investments to commercialise ANZ academic research, declining from $1.07/share to a share price of $0.11 today. However, since late 2020, a leadership/management tussle arose over what was essentially the opportunity to clean the slate, remove the previous board and pivot/start afresh with this listed entity...

Peter McGrath, Timothy Hannon, Lachlan Armstrong and Andrew Ramsay sought to dispose of the initial Board and turn the company around (with a pivot to later stage VC deals) and in March 2021 submitted a notice under sections 121(b) and 109 of the Companies Act 1993 (NZ) (Act) requesting the Company to call and arrange to hold a meeting of the members of the Company. This motion was backed by Raven Investment Holdings Pty Ltd; Amherst Developments Pty Ltd; and The Ramsay Financial Group Pty Ltd. Their thesis was outlined as follows:



Meanwhile, the second group of contenders emerged. In April 2021, a substantial shareholder notice from Capital H was lodged. Capital H is a very successful, Sydney based investment manager, founded in 2014 by Mr. Harley Grosser with compound annual returns north of 30% pa. I hypothesise that Harley had seen the opportunity to effectively take control of the PVL listed vehicle to re-energise/re-start/re-fresh the company and work collaboratively to suggest a new future for the company. Given the market cap of PVL stands at just $10m with an investment portfolio of circa $3m and cash on hand of circa $4m, PVL appears as one of the best "shells" to start afresh from. Moreover, Capital H, via their Active Fund, have a mandate to take an active position in companies (evidenced by ASX:ARC) and so the stage was set. Financial Clarity Pty Ltd, joined forces with Capital H with this endeavour in mind:




Ultimately, the leadership skirmish was won by Capital H & Financial Clarity Pty Ltd and in Nov 2021, Capital H put forth a stellar team of individuals to form the new board of the Company. The board is led by Chairman James Kruger, and joined by Joseph Demase and Joshua Baker (PM of Capital H). Here's why I am backing the new team to go forward and generate significant shareholder value:

1. The team is confident and has skin in the game: The incoming Directors have agreed to take no cash fees and instead receive an allocation of 4.0m options to Kruger and Demase and 2m options to Baker. These options have a strike price of $A0.11, expire on 31 December 2023 and will only vest if the PVL share price trades above $A0.20 over a 20-day VWAP and each of the individuals are still Directors of the Company at the time of vesting.
2. The new team is an A-Star cast: James Kruger has had extensive experience in technology investment, which he combines with significant corporate finance, governance, and regulatory expertise to high impact, transformational companies. He has had a 21 year career at Macquarie Group principally based in Hong Kong but with a global focus as Executive Director / Integrity Officer / Subsidiary Director /Management Committee member (leading teams of 100+ people). Josh Baker has a successful track record as PM at Capital H and Mr Demase is currently the Managing Director of 5G Networks Limited (5GN). Moreover, James has convinced a former Macquarie colleague to join the crew with Campbell Hedley, coming onboard as General Counsel & Company Secretary and Geoffrey Nicholas joining as Chief Financial Officer. You can listen to a podcast with James here: https://www.buzzsprout.com/178363/5477104-episode-7-the-future-of-electric-cars-batteries-and-critical-minerals-james-kruger
3. Capital H continues to accumulate on market at current prices: I believe this will set a floor in the share price of at least 10c. If Capital H like the risk/reward dynamic at this price then I consider that an excellent sign, given their direct link to the company via Josh Baker on the board.
4. The focus Is now on late-stage VC investments: Importantly, this will align the goals of the company with cashflow. A major flaw in the early years of PVL was that early-stage investments led to ongoing rounds of dilution for the PVL entity. Going forward, the company is seeking out late-stage investments, which combat this problem and should lead to shorter-term investment returns.
5. 2022 will involve a major refresh for the company and newsflow: Last but not least, I believe we will see major newsflow from PVL next year as they continue to execute on late-stage deals and re-fresh the company, with the release of a new website. Moreover, Capital H has, to date, been very quiet on its involvement here. Once we see Capital H promote the company in avenues such as Livewire, I expect significantly more attention to fall on the stock.

So, a) we have a new Board and Management team in place — the market can finally have faith in PVL's investment nous with the involvement of players such as Kruger & Baker, b) the Company is already making moves — investing in CourseLoop, FirmusGrid and SkyCraft and divesting legacy investments and c) Capital H continues to buy on market, supporting the share price. At the current share price, the company trades on a market cap of merely $10m with circa $4m cash in the bank and a portfolio value of circa $3m.

I think the reward/risk profile is hugely asymmetric. The upside on offer to a $20m market cap, where the Board's options vest (20c) is circa 100% as a starting point. From there, if the company can become a successful VC fund with a basket of winning companies, fair value for PVL could quickly climb to $50m and beyond. On the other hand, the downside risk is low, because board and management are no longer drawing salaries and thus cashburn is likely to be very low. Capital H will not want a CR at these depressed share price levels. No doubt the board will want to allow their success in 2022 to drive appreciation in the share price to levels where they can then raise further funding to continue building the portfolio, generate wins and recycle capital back into the portfolio.

I love arriving at a stock early — and I believe PVL 2.0 is just beginning.

T.E.P.