Difference Capital’s Tom Astle (left) and Tom Liston.

Following a strong quarter, Mackie Research Capital analyst Nikhil Thadani is feeling bullish about Difference Capital (TSX:DCF).

Yesterday, Difference Capital reported its Q2, 2016 results. The company earned $3.62-million on a net gain on investments and marketable securities of $4.9-million. The company also marked up its U.S. real estate by $4.5-million.

“This quarter we saw the benefits of our late-stage focus and a good M&A [mergers and acquisitions] market with the exits of Quickplay, BTI and Embotics. While IPO [initial public offering] conditions remain muted, we continue to believe that many of our portfolio companies are scaling well and will reward us with solid returns in the future,” said chief investment officer Tom Astle.

Thadani notes that Difference Capital’s Net Asset Value (NAV), which the company notes rose to $2.00 from $1.88 on March 31, could be further spurred by IPOs in names such as Hootsuite, Build Direct and Vision Critical. He points out that most Difference Capital portfolio companies appear to be growing revenue at more than 40 per cent year-over-year, with some exceeding 100 per cent growth. He thinks these metrics are not reflected in its NAV.

“Canadian companies testing the IPO window in the Fall could benefit DCF,” says the analyst. “We are all eagerly awaiting new Canadian tech IPO’s. The IPO window has been truncated even in the US so far year-to-date. However, good reception to tech IPO’s south of the border for the trickle of companies coming to market and some recent industry anecdotes could suggest the IPO window may crack open in H2/16 and more so in 2017. From a NAV standpoint, we believe M&A exits may provide more DCF NAV accretion as opposed to IPO’s helping reduce DCF’s stock price – NAV discount.”

In a research update to clients today, Thadani maintained his “Buy” rating on Difference Capital, but raised his one-year price target on the stock from $2.10 to $2.20, implying a return of 98 per cent at the time of publication.