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CHP to Tap Multi-Billion-Dollar High-Growth Tech Sectors: More to Come

Published 20-DEC-2017 09:33 A.M.


16 minute read

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Chapmans Ltd (ASX:CHP) has its corporate finger strategically poised on the pulse of rapid-growth markets. This Listed Investment Company (LIC) secures targeted investments via meticulous selection.

With a sharply focused investment philosophy, CHP takes high conviction bets on emerging companies seeking capital and active management advice. It’s engaged in a range of growth sectors with an emphasis on breakthrough technology innovation.

This cuts to the heart of its underlying strategy. CHP only invests in companies with low entry prices and clear pathways for accelerated revenue — each with a tightly defined exit plan.

Its aim? Value creation. In spades.

CHP has recently unveiled a number of sharply selected investments and related developments that perfectly illustrate this structured approach.

In October, CHP announced a pivotal joining of forces between its clean-tech business, Syn Dynamics Australia (SDA), and leading Asia Pacific region waste and environmental services company, Total Waste Management (TWM).

SDA has developed and patented breakthrough next-generation plasma gasification technology (Plasma Hydrous Pyrolysis, PHP), which converts a broad range of waste materials into a renewable clean gas, known as syngas. It has critical application in the global hazardous waste remediation and renewable energy industries.

Compared to other clean-tech or brown-to-green technologies, SDA’s technology has game-changing cost, performance and implementation advantages, presenting a range of mass-scale adoption opportunities.

It should be noted here that CHP is an early stage play and investors should seek professional financial advice if considering this stock for their portfolio.

This joint venture will allow SDA to establish its first commercial scale hazardous waste-to-energy plant, with the capacity to treat over 10,000 tonnes per year of hazardous waste over a 20-year design life. The plant is expected to be commissioned in the first half of 2018.

SDA also recently completed a highly successful 12-month R&D and commercialisation project with the Commonwealth Scientific and Industrial Research Organization (CSIRO), which validated its plasma reactor processing as a hazardous waste conversion technology.

Not bad for one tiny ASX stock. Especially considering that the global market for toxic and hazardous waste remediation exceeds some $50 billion.

On top of that, CHP is also carving out a space for itself in the buzzing medicinal cannabis corridor with an investment in MJ Life Sciences (MJLS), an Australian special-purpose company aiming to become a leading global medicinal cannabis holding and investment company.

MJLS was founded by a triad of major players in the thriving Australian and global medicinal cannabis landscape: namely, Harry Karelis, Jason Peterson and Dr Stewart Washer. Each bring extensive regulatory, technical, operational and transactional industry experience as founders and directors of a number of ASX-listed companies.

This opportunity is a big win for CHP, providing exposure to future high-calibre investments in the burgeoning medical marijuana space. Globally, medicinal cannabis is expected to be a $200 billion industry by 2020. And according to research by the University of Sydney, medicinal cannabis in Australia alone could be worth more than $100 million a year.

In keeping with this approach, the most recent development on the CHP front pertains to an explosively fast-growing space: blockchain technology.

Blockchain provides a public ledger of transactions for cryptocurrencies like Bitcoin. It has the ability to provide more secure solutions to a host of sectors, including banking and professional services, capital and commodity markets, and supply chain management... and that’s only the tip of the iceberg in terms of its transformative potential.

With adoption of this distributed ledger technology quickly growing across myriad applications, the value of the global blockchain market is expected to cross US$6 billion mark by 2023.

Recognising this space as a rapidly emerging and profitable one, CHP has engaged blockchain industry heavyweight, Mike Cohen, as advisor, to generate and qualify compelling blockchain investment opportunities.

CHP’s first strategic investment in blockchain technology comes by way of its $1 million participation in the recent placement REFFIND (ASX:RFN).

RFN is a Software as Service (SaaS) provider, whose exposure to blockchain comes through its investment in Loyyal Corporation, a universal loyalty and rewards platform built with blockchain and smart contract technology.

With Deloitte and a range of other Fortune 500 customer use cases already contracted and using Loyyal’s platform, this investment and product offering fits CHP’s blockchain investment strategy down to a tee.

Given the high-growth investment opportunities that CHP has in its hands, this forward-focused ASX junior could be considerably undervalued at a mere $9.14 million market cap.

Without further ado, re-acquainting you with:

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A pitch-perfect investment strategy and a clear path forward

Chapmans Ltd (ASX:CHP) is all about capturing value through strategic investments in rapid-growth or early-stage businesses. As a diversified investment group, CHP sifts through a barrage of stocks to make strategic investments in a small, select number of companies offering high potential returns.

A quick word on CHP’s investment strategy and LICs themselves...

LICs, or Listed Investment Companies, are managed funds that trade on stock exchanges, providing exposure to an actively managed portfolio of securities in a single security.

These benefits have seen Australia’s LIC market grow at an impressive 16.4% per year over the past five years to reach $33.1 billion at 30 June 2017.

What gives CHP an edge is its rigorous investment philosophy. Utilising a high-conviction approach that prioritises growth industries, CHP looks to provide reliably high returns through fastidious investment selection and active risk management.

As we’ve said, CHP ensures that it has a clear exit strategy when going in to each investment. It also has a focus on unique, scalable, market-leading technologies that have an identified path to commercialisation.

Typically, the companies CHP invests in have experienced one or more distinct ‘special situation’ events such as:

  • A period of significant accelerated growth
  • Business expansion or transition events
  • Maturity and liquidity events
  • The need to access immediate and significant levels of capital for bankable projects or non-conforming higher risk opportunities

Part of this effective strategy is astute asset management, as evidenced by a couple of recent divestments to free up CHP’s funds, including that of Digital4ge (from which CHP will retain its stake in RFN) and VAMP.

CHP is in an overall strong cash position, with $2.2 million in the bank. This was helped when its clean-tech business, SDA, received a $496,559 refund from the Federal Government’s R&D tax incentive.

More promisingly still, CHP has this month secured a pair of new strategic cornerstone investors to help fund and support its high growth investment strategy.

These are developer Tan Sri Abu Sahid Bin Mohamed, who is renowned in Malaysia for his privately held infrastructure and construction companies and is the man behind the country’s main expressway network, as well as Tan Sri Tuang Nguang Lau, an executive of the oldest and largest poultry group in Malaysia.

Each has bought 65 million CHP shares, at an issue price of 0.5 cents, giving them each a 5% share of the company.

The support of these two very high net worth investors provides validation of CHP’s business model, and will maximise the value of the ASX junior’s investments moving forward.

Let’s take a look at the latest development in CHP’s corner...

CHP to join the blockchain gang

Blockchain, the underlying technology that makes Bitcoin possible, is rapidly gaining traction in a plethora of applications and sectors. Commentators and tech specialists alike are saying that this is just the beginning when it comes to the way this disruptive technology can be deployed.

It’s an emerging technology that facilitates trust and transactions through a secure and immutable distributed ledger system (DLT).

Here’s the abridged version of how it works:

The burgeoning industry this has created, moreover, is in the throes of a considerable boom.

The blockchain market is projected to reach US$6 billion by 2023, growing at a compound annual growth rate (CAGR) of 48.37% during the forecast period.

Bitcoin itself has advanced more than 1000% this year, and the total cryptocurrency market now sits north of US$300 billion.

Headlines like these speak for themselves when it comes to this explosive space:

blockchain headline

what is blockchain?

blockchain currency

In short, it passes the CHP litmus test.

However, how much of the market CHP is able to corner is speculative at this stage and therefore investors shouldn’t act on this fact alone, but should take all publicly available information into account and seek professional financial advice.

With a sharp eye on this blockchain and crypto boom, CHP has made an astute move to gain an early mover advantage, appointing global blockchain industry expert, Mike Cohen, in an advisory capacity.

Cohen has some serious blockchain chops. He has expansive industry experience working as an advisor and system architect for leading industry stakeholders, including blockchain development teams and solution providers, regulatory and industry bodies, enterprise customers and investors.

Based in Montreal, where he co-founded, a blockchain application development and consulting firm, Cohen advises North American institutional investor groups looking to publicly list or invest in proven blockchain businesses, so he’s impeccably positioned to assist CHP with target investment origination, assessment, and deal structuring.

Cohen will bring to CHP a deep understanding of the technical, commercial and regulatory framework that underpins the burgeoning DLT industry, as well as an extensive network of leading blockchain solutions providers seeking strategic value-added growth capital.

Armed with early hands-on exposure to cryptocurrencies, computational trust models and initial coin offerings (ICOs), Cohen will provide valuable subject matter expertise for the origination and qualification of valuable blockchain investment opportunities.

In short, Cohen is precisely the kind of industry maven you’d want in your corner when delving into a booming industry that’s set to get even bigger.

CHP’s strategic blockchain investment

As we’ve mentioned CHP has now made its first strategic investment: REFFIND (ASX:RFN).

This investment has consisted of a $1 million participation in RFN’s recent placement at an average price of 2.43 cents per share. Combined with CHP’s existing shares held in RFN, this now makes it the largest shareholder with a 9.33% stake.

RFN has leverage to blockchain technology through its strategic investment in Loyyal.

This investment gives RFN exclusive rights to Loyyal’s technology platform and product offering in agreed countries across the Asia Pacific region, with certain performance based terms.

This makes RFN ripe for significant growth through expansion to its existing rewards and recognition platform, WooBoard, which in turn provides CHP with excellent exposure to the burgeoning blockchain sector.

This is a sizeable milestone for CHP, combining its high conviction approach to early-stage technology investment with its expanded reach into a thriving markets.

Speaking of which, let’s move on to the next flourishing market the diversified CHP is tapping...

Syn Dynamics, clean technology and waste management

Let’s be honest. There’s nothing glamorous about the words ‘waste management’. What’s important, though, is that this is a market that easily passes CHP’s rigorous ‘rapid growth industry’ criteria.

The clean-tech market was worth US$601 billion in 2014, and is expected to expand to US$1.3 trillion by 2020.

More precisely, the hazardous waste management market is growing in response to population growth and urbanisation. Globally, it generated US$25.34 billion in revenues in 2016, which is forecast to rise to US$45.19 billion by 2025.

CHP has competed its due diligence for a promising piece of news: establishing a joint venture between its clean-tech business, Syn Dynamics Australia (SDA), and leading Asia Pacific region waste and environmental services company, Total Waste Management (TWM). covered this development back in October:

chapmans syn dynamics

(Finfeed is a related entity of S3 Consortium Pty Ltd as defined in Section 9 of the Corporations Act 2001)

This well-engineered JV is a clear route for establishing SDA’s first commercial scale hazardous waste-to-energy plant.

TWM is a world-class waste and environmental services company, headquartered in Papua New Guinea, with operations throughout the Asia-Pacific region. Its services include cleaning and industrial services, facilities management and civil and environmental engineering in the petroleum and mining industries, and other market segments in the industrial and commercial spaces.

chapmans waste management

CHP’s subsidiary company, Chapmans Opportunities Limited (COL), has a majority, strategic 80% interest in SDA.

The group’s breakthrough next-generation plasma gasification business has developed technology with significant application in the global hazardous waste remediation and renewable energy industries.

SDA’s proprietary technology converts a wide range of hazardous carbon-based waste materials into a high-value synthetic gas known as ‘syngas’ (more on that shortly).

The JV company, registered as TWM HAZTEK Holdings Pty Ltd, is a 50:50 owned entity with equal board representation from both parties.

This JV has plans to install and operate a commercial-scale plant which has the capacity to treat over 10,000 tonnes of hazardous waste per year, over a 20-year design life. The plant is expected to be commissioned in the first half of 2018.

Once that first plant is up and running, the JV will install and operate multiple large-scale commercial plants throughout the Asia Pacific region.

SDA’s unique PHP technology

Returning to the tech side of things, gasification is a process by which carbon based material is converted into a gaseous fuel, namely a mixture of carbon monoxide and hydrogen, also known as synthetic gas or syngas.

Syngas is also a global commodity in its own right, with a broad scope of applications and commercial uses.

Plasma gasification is a next-generation extension of the gasification process and has seen a surge in interest and commercial application in recent years. It uses an ionised gas (a plasma) to convert the organic matter into syngas or solid waste.

SDA’s PHP technology, which was developed over ten years, has a range of compelling advantages. It has a high waste-to-syngas conversion rate, as well the ability to treat a wide range of waste material, including hazardous waste, biomass and landfill, and solid hydrocarbons such as coal. It is cost-effective, with its unique reactor architecture having low capital and operating expenses.

Compared to other clean tech or brown-to-green technologies, SDA’s technology has breakthrough cost, performance and implementation advantages, presenting mass-scale adoption opportunities in both the corporate and government sectors.

MJ Life Sciences and the thriving medicinal cannabis rally

It’s no secret that the burgeoning medical cannabis industry has attracted investor interest in a serious way.

In recent years, in parallel to a shifting legislative landscape, the budding medical marijuana space has been the subject of massive attention, with an expanding crop of ‘pot-stocks’ setting multiple stock markets, including the ASX, ablaze.

Again, this is a market that well and truly meets CHP’s ‘rapid-growth industry’ criteria.

chapmans medicinal cannabis

However it is an early stage of this company’s development and if considering this stock for your portfolio you should take all public information into account and seek professional financial advice.

After months of careful searching for the right opportunity, in September CHP revealed its strategic investment in MJLS.

Under the terms of the investment:

  • CHP has invested A$631,313 (US$500,00) in exchange for a 50% equity holding in MJLS; and
  • CHP has the right to equal board representation to the existing MJLS shareholders and will control 50% of the board with the existing MJLS shareholders controlling the remaining 50% of the board.

MJLS was founded by three pivotal names in the medicinal cannabis space: Harry Karelis, Jason Peterson and Dr Stewart Washer, who are also founders of Auscann Group Holdings Limited (ASX:AC8), Zelda Therapeutics Limited (ASX:ZLD), CannPal Animal Therapeutics Ltd (ASX:CP1), and specialist cannabis medical clinic operator, CliniCann Ltd.

With the ability to leverage the extensive experience of these high-calibre players, CHP’s opportunity to invest directly in MJLS is highly beneficial, as well as consistent with its strong conviction and capital growth investment approach. This is a significant value accretive transaction for CHP, paving the way for a strategic long-term partnership with MJLS.

MJLS’s Board of Directors will be reviewing its investment strategy and focus, with a view to secure additional medicinal cannabis opportunities in the near term.

It’s worth noting that a considerable chunk of the Australian companies looking to cultivate or manufacture medical cannabis in Australia are listed on the ASX, and nearly all have outperformed the wider market by a considerable margin this year.

Shares of three major cannabis plays — MMJ Phytotech (ASX:MMJ), AusCann (ASX:AC8), and Zelda Therapeutics (ASX:ZLD) — rose by an average of more than 130% in the first half of the year.

cannabis stock surge

CHP is hoping for something similar as it looks to secure an ASX listing for MJLS in 2018.

Building a strategic portfolio

With its rock-solid investment philosophy, and diverse portfolio of carefully selected investments in rapidly emerging sectors, CHP is emerging as a force to be reckoned with.

This ASX junior has a clearly defined strategy to capitalise on the huge investment upside of first mover advantage in breakthrough technology, and it may not be long before investors cotton on to this quiet achiever.

With a tiny market cap of $9.14 million, this could be could be an entry point worth considering for investors seeking a highly diversified basket of assets.

CHP has plenty to keep it busy, including plans to list several of its investment companies on the ASX in the new year, but will continue to aggressively seek out additional high-impact opportunities, especially in the fast-growing blockchain space. This should result in a regular flow of news in the months to come.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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