Has Allied Minds (LSE: ALM) finally turned a corner? Shares in this Neil Woodford favourite jumped by as much as 20% in early deals this morning after the company announced that one of its subsidiaries, Federated Wireless has completed a Series B funding round, raising $42m.
What’s notable about this deal is that some of the key telecoms players in the US participated. Charter Communications, American Tower, ARRIS International, Singapore’s sovereign wealth fund, Allied Minds and Woodford Investment Management all contributed to help the business move forward.
As well as the fundraising news, Federated Wireless also announced that it is beginning to deploy its technology, starting with the industry’s first commercially available Spectrum Controller. Management is conducting testing and field trials for this device, which allows “cable operators and others to access the wireless market on economic terms, without the need to own spectrum outright.” These trials will hopefully result in FCC certification by the first quarter of 2018.
If successful, this technology could be highly valuable, as buying spectrum outright can cost operators billions of dollars. And it looks as if the biggest players in the market realise the opportunity here. American Tower, for example, is a leading operator of wireless and broadcast communications real estate with 148,000 sites in its portfolio.
I believe that this deal could also signal a turnaround in Allied’s fortunes.
Shares in Allied have lost around two-thirds of their value this year as the company has struggled to convince shareholders that it’s a worthwhile investment.
In April, the shares lost 20% in a single day after the intellectual property group announced that seven of its subsidiaries would be sold or wound down as part of a £118m writedown. Then, during August, the company reported a loss of £54m for the six months to June 30 as revenues ticked higher from $1.3m to $2m.
These losses wouldn’t be so bad if the company had a track record of success. However, during its history, Allied has failed to realise a profit for investors on any of its investments. With this being the case, it’s no surprise the share are down by 74% from the 2015 high of 724p.
Still, private equity investing is a high risk, high reward business. Most companies fail, but the ones that succeed usually make up for them.
Has the company turned a corner?
I think that Federated Wireless’s progress is a sign to investors that there’s still value in Allied’s portfolio. If the company can get FCC approval during the first half of next year, it could be the first company in Allied’s portfolio to yield results.
If Federated succeeds, patient investors could be well rewarded, yet even though Allied looks to be moving forward, this isn’t a stock for low-risk investors. Indeed, if Federated’s trials fail, investors will have to accept further losses.
Rupert Hargreaves does not own shares in any company mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.