How did Underwood Capital (ASX:UWC) achieve its largest NAV jump since it began trading?

Underwood Capital Limited (ASX:UWC) surged 16.67% on September 5, 2025, closing at AUD 0.07 following the release of its August portfolio update, which revealed a striking 26% increase in net asset value (NAV) before tax. This jump marks the most significant single-month NAV growth since the company’s investment entity transition in 2018. The move positions Underwood Capital as one of the most closely watched specialist investment companies on the ASX this month, with growing attention from both retail and institutional investors.

Trading volume surged to over 900,000 shares, reflecting renewed market confidence after Underwood Capital reported robust valuation uplifts across both its unlisted and listed investments. The firm’s market capitalization now stands at AUD 14.37 million, and its shares have delivered a 12-month return of 75%, a figure that significantly outpaces the broader ASX benchmarks.

What triggered the sharp increase in Underwood Capital’s net asset value in August 2025?

Underwood Capital attributed the bulk of the 26% NAV jump in August to a revaluation gain of AUD 6 million in its investment in Weed Me Inc., a Canadian unlisted cannabis firm. This gain was derived from an increase in the enterprise value to net revenue multiple (EV/NRM), which rose from 1.2 to 1.8 during the month. The company noted that this revision was based on improving trading multiples across listed Canadian cannabis peers, which it considers comparable in structure and growth potential to Weed Me.

The EV/NRM valuation methodology applied by Underwood Capital uses a blended multiple based on the end-of-month valuations of comparable Canadian cannabis companies. This figure is then multiplied by Weed Me’s trailing 12-month revenue, followed by a 15% liquidity discount to reflect its unlisted status. The result of this model pushed the value of Underwood’s 13% stake in Weed Me to AUD 14.5 million by the end of August, accounting for nearly half of its total portfolio value.

The second major contributor to NAV growth was a AUD 1.3 million increase in the value of Underwood Capital’s listed Australian small-cap holdings. These gains reflect improving sentiment in domestic equity markets, especially among value-oriented, founder-led growth companies targeted by Underwood’s investment manager, HD Capital Partners Pty Ltd.

How material is Weed Me’s impact on Underwood Capital’s valuation and investor risk profile?

Weed Me remains the single largest position in Underwood Capital’s investment portfolio. As of August 31, 2025, it comprised 48% of the firm’s total assets, with a book value of AUD 14.5 million. The company holds 4.24 million shares in Weed Me, representing around 13% of its issued capital. This heavy concentration means that fluctuations in the valuation of Weed Me can significantly influence the reported NAV of Underwood Capital from month to month.

Management has explicitly cautioned that its reported NAV figures should be considered “point-in-time assessments” due to the fluid nature of valuation models applied to unlisted assets. Because Weed Me is not publicly traded, its valuation remains inherently subject to estimation risk. Management’s assumptions are grounded in market comparables, historical revenue data, and forecasts of sector sentiment, but they acknowledge that actual exit values could vary materially.

Analysts and retail investors alike are watching for further clarity on Weed Me’s business performance and any future plans to list publicly, as such a move could enhance valuation transparency and improve Underwood’s liquidity profile.

Which listed ASX small caps are supporting Underwood’s diversified strategy and portfolio gains?

In addition to Weed Me, Underwood Capital’s August performance benefited from strong momentum across its portfolio of ASX-listed small caps. These holdings collectively represent 44% of the portfolio, or AUD 13.2 million in value. HD Capital Partners, Underwood’s investment manager, reported positive fundamental developments in several positions during the month.

Airtasker (ASX:ART) was highlighted for generating AUD 15 million in free cash flow and providing a forward outlook for growth in Australia, the United Kingdom, and the United States. According to HD Capital, the stock continues to trade on attractive valuation multiples in the range of 10 to 11 times EV to free cash flow, suggesting room for further rerating.

Cuscal’s performance exceeded its prospectus guidance, and the firm announced the acquisition of Indue for AUD 75 million in cash. HD Capital expects the combined entity to deliver AUD 20 million in post-tax synergies over three years, despite requiring up to AUD 30 million in integration costs. While the deal is still pending regulatory approval, HD believes it will be highly accretive and may unlock index inclusion benefits in the near future.

Praemium (ASX:PPS) signaled that three major product wins were likely to sustain double-digit revenue and earnings growth through FY26, provided client onboarding processes remain on track. HD Capital views this as a material validation of Praemium’s platform and an indicator of continued scaling potential.

Cogstate (ASX:CGS), a cognitive science technology company, delivered robust earnings growth in FY25, particularly in the second half. The firm issued forward guidance indicating continued expansion in FY26. HD Capital expects Cogstate to benefit from structural tailwinds in Alzheimer’s research, especially as diagnostics and clinical trials move into earlier stages of disease detection.

LaserBond (ASX:LBL) was also singled out for its strong turnaround, with sustained gross margin performance in the second half of FY25 and continued growth across both services and product verticals. HD believes LBL is still trading below intrinsic value, with forward P/E estimates also hovering around 10–11 times.

How do Underwood Capital’s shares compare to its net asset value and what’s next on the radar?

Even after the recent share price rally to AUD 0.07, Underwood Capital continues to trade at a sharp discount to its NAV. The pre-tax net tangible asset value stands at AUD 0.1387 per share, while the post-tax NTA is AUD 0.1188. This reflects a trading discount of over 40%, even when adjusting for deferred tax liabilities and unlisted holdings.

The disconnect between share price and asset value is typical of listed investment companies (LICs) with concentrated, illiquid holdings, particularly in unlisted sectors such as cannabis. However, the narrowing of this gap suggests that investors may be beginning to price in both the momentum of Underwood’s listed holdings and the optionality of a revaluation-led cycle in cannabis equities.

Market watchers will closely track future updates on Weed Me’s performance metrics, potential liquidity events, and broader sector sentiment in North America. Additional upside could be realized if Weed Me pursues a public listing or completes a funding round at higher valuations, which would offer third-party validation of Underwood’s estimates.

Why is Underwood Capital gaining new attention from forum investors and long-term value seekers?

Underwood Capital’s hybrid strategy—blending cannabis exposure with Australian small-cap deep value plays—is resonating with contrarian investors looking for niche allocations. Since its rebranding from Hygrovest Limited, the firm has strategically positioned itself as an alternative asset gateway, offering exposure to private market valuations alongside tactical listed equity upside.

As of August 31, 2025, the portfolio comprised AUD 30 million in total assets, including AUD 2 million in cash and equivalents and diversified holdings across equity and debt instruments. Year-to-date returns stand at 33%, while annualized returns since inception (June 2018) are currently reported at negative 10%, underscoring the legacy portfolio drag that Underwood is gradually overcoming.

HD Capital Partners continues to emphasize opportunistic investing, particularly in founder-led companies or those undergoing corporate actions such as mergers, tender offers, or divestments. This strategy, while higher risk, may provide non-linear returns in market environments characterized by dislocation and underpricing.

As Underwood Capital continues to rebalance its portfolio toward more liquid and scalable positions, further re-ratings in NAV and share price may follow—especially if its listed investments outperform guidance or macro catalysts accelerate valuation adjustments in cannabis assets.