Specialty Finance Upstart With Nearly $9 Million Cash & $23-Million AUM Trading At Only $7 Million Market Cap

When the valuation math isn’t right for a blue-chip company, analysts tend to point it out for the investment world to latch onto, lending to a correction becoming sort of a self-fulfilling prophecy. When it comes to microcap companies, the adjustments tend to be slower as a consequence of less exposure, but they almost inevitably happen as well, provided the company continues to execute.

Specialty finance company TIMIA Capital Corp. (TSX-Venture:TCA) (OTC:TIMCF) is a case in point. The upstart’s Toronto-listed shares continue to trade around 21 cents, equating to a market valuation of $7.6 million. It’s arguable that the news from last Monday puts a spotlight on the disconnection between the fundamentals of the company and the market valuation, creating a gap that should get filled in the future if management can hold the current growth trajectory.

TIMIA, which specializes in providing financing for expanding revenue-generating technology companies, said that it has formed its first Limited Partnership (LP), called TIMIA Capital 1 Limited Partnership. External investors have put up $7.6 million already, with additional subscription agreements to invest another $500,000 in hand. TIMIA is retaining a $2.4-million investment in the LP, putting a formation value on TIMIA Capital 1 Limited Partnership at $10.5 million.

Jumpstarting the LP, TIMIA is transferring its $8.2 million in existing financing agreements with Software-as-a-Service (SaaS) portfolio companies to TIMIA Capital 1 Limited Partnership. In return, TIMIA will earn its investment in the LP and receive $5.8 million in cash.

The remaining $2.3 million of the $10.5 million will be invested in additional SaaS firms that meet TIMIA’s investment qualifications underscored by proprietary algorithms. The investments are squarely focused on companies generating between $1 million and $10 million in annual revenue.

According to pitchbook.com data, the loan market for companies this size is already $14 billion and growing speedily at 25% per year, meaning that TIMIA can cherry pick the companies it wishes to do business with.

As the monthly payments – a combination of principal and interest – arrive from these and future agreements, they will be distributed to LP unit holders, including TIMIA.

When all is said and done, TIMIA will have a minimum of a 20% stake in the LP, which will be governed by General Partner and TIMIA subsidiary, TIMIA Capital Group Inc.

To that point, TIMIA will get a 1.5% service fee for managing the LP and will be entitled to a performance fee based upon the fund’s profitability once the original investors get their return on investment.

While securing a stream of recurring revenue and benefiting from future LP investments, TIMIA has strengthened itself today by this agreement. The move improved TIMIA’s cash position to roughly $8.7 million and now gives the company about $23 million in assets under management.

The $8.7 million in cash, recurring revenue and $23 million in AUM is best put into perspective when considering that it was accomplished with TIMIA only raising $10 million prior to the LP deal.

If that wasn’t enough, the Company put out its fourth quarter and year-end financial results on March 15, and they were impressive to say the least. Timia announced record annual revenue and asset growth which topped previous years' results. This company is on fire, and the stock performance over the last week is indicative of a stock that is trying to catch up to its strong fundamentals.

Circling back around to valuation, it also certainly brings into question TIMIA’s paltry market capitalization compared to those current assets, even after its recent share price run-up, much less giving value to what the future holds for this quickly growing and well-managed company.