Exactly. Buying back shares before lots of good news is a savvy move.
The expected Featurespace proceeds can be set aside to repay the loan facility in a year. But if they wait for the actual Featurespace cash before increasing the buyback, the share price might have already spiked on news of a major IPO (Klarna I'd guess).
I think it might be time to add to my position... |
Well the share buyback can start pretty quickly once they have the facility money.Guessing they are aware of realisations ( Featurespace ?) but that could take a few months for any such deal to complete and there be cash available so they want the flexibility to start buying back shares at the current discount levels...especially with potentially more value accretive news on possible IPOs on the horizon.Positive for sentiment and should underpin the share price and lead to a narrowing of the discount. |
For personal awareness and that it comes from Starling Bank and seems to overlack on the deep instinct use AI to combat AI fraud. https://www.theguardian.com/money/2024/sep/18/warning-social-media-videos-exploited-scammers-clone-voices |
Interesting interview on deep instinct from a couple of weeks ago...interesting holding when there is rumoured m&a activity in the cyber sector.https://www.unite.ai/yariv-fishman-chief-product-officer-at-deep-instinct-interview-series/Seems a decent recovery coming threw in another holdinghttps://www.cityam.com/secret-escapes-post-pandemic-demand-helps-significantly-cut-loss/ |
Well the new ceo wouldn't be boarding a sinking ship in my view I would expect they got comfort on shareholder support and funding..Hartigan I'm afraid seemed to have motives which were not aligned to all shareholders from what I can tell. If the restructuring gets done and the company refocused on the profitable areas there could still be significant value within a year or two I hope. It has now been marked down significantly and has much less an impact on CHRY overall. Fingers crossed the Featurespace deal gets done...much greater bearing short term. |
Hartigan was asleep on watch or just plain negligent in oversight to create this mess. Given that can you really be sure it is viable as they need recapitalisation in a few weeks. The Arabs didn't see value in bailing it out last time. The only one further out of pocket is CHRY who foot almost the whole bill. |
Wefox news.https://www.reinsurancene.ws/wefox-hires-joachim-muller-from-allianz-as-ceo-mark-hartigan-to-continue-as-chairman/Seems a good hire and doubt would be taking the role unless they saw a future.Wefox now needs a new Chairman ! |
 From shop research"IP Group has an effective interest of just over 20% in FeatureSpace whilst Chrysalis owns just over 11%. Based on the speculated purchase price, IP Group could receive gross proceeds of £137.5m whilst Chrysalis receiving c£83m. This compares to carrying values of £112.7m for IP Group (just written it up by more than 50% in H1 2024) and £74m for Chrysalis, respectively."For Chrysalis the conversion to cash clearly more important right now than the relatively small uplift. With current cash balance approx £50m.( we had £62m pre e15m into Wefox) we should see the majority of this disposal if it materialises returned to shareholders. There are just under 600m shares in issue so approx 100m to buyback. Could be done slowly as an on market buyback or they could look at a tender at a premium..Ie offer 100p for 14% of shares outstanding.Either way it would be value accretive to remaining shares."The company will aim at all times to maintain a prudent cash reserve the board and portfolio manager guide that an appropriate cash reserve is currently believed to be £50m;Having met the cash reserve requirement, the company will next prioritise distributions to shareholders the board currently intends to utilise its existing authority to buy back up to 15% of its share capital and, if required, seek further authority from shareholders to continue share buy backs until £100m of cash has been distributed, conditional on the ongoing discount; andThereafter the company will balance its capital allocation between further distributions to shareholders and portfolio investments, aiming to distribute up to 25% of net cash profits on realisations." |
Agreed - a good start to a period which should be full of interesting news. Hard cash and a 40% discount make good companions |
74m net cash incoming, very excited about finally triggering the buybacks and closing this silly discount to nav. We still have Klarna to come early next year. |
https://news.sky.com/story/london-listed-funds-land-200m-from-lynch-backed-featurespace-13217910 |
Investec commentary on AGT-confirmed it had sold its 16,165,250 shares.Aberdeen European Logistics Income (ASLI) In Wind-Down.NT Lease Office Property (NLOP) In Wind-Down.Chrysalis (CHRY) We note AGT recently announced a holding >10% in CHRY. The second part of CHRY's Capital Allocation Policy, which is dependent on further portfolio realisations is to return £100m to shareholders via share buybacks. Klarna is expected to IPO in Q1-25 and Visa is reportedly in negotiations to acquire Featurespace. |
Slightly difficult to know on the increased investment...with the interims 28th June stated · In the normal course of business, a valuation of the portfolio, including wefox, will be performed as at 30 June 2024 during July and published at the end of July. That valuation will take account of the proposals for how wefox may go forward, which we expect to be at a more advanced stage by then.· If negotiations conclude prior to our 30 June NAV being published in July, we will consider whether it is appropriate to update shareholders on any impact on the carrying value of wefox.So the £60m was the figure for the holding given end at end of July for 30th June but after the refinancing took place. So the valuation is based on the refinancing but the increased investment is not?You are probably right though they have stated it was post event so a slightly larger exposure...unfortunately their confidence in the funding was not warranted by the sounds of it..especially as they were the cornerstone investor."Having committed further capital to wefox post period end, amounting to approximately 15 million, the Investment Adviser does not expect this asset to require further material funding. " |
Chrysalis had to fund 75 percent of the bailout last time, you would have to think this time is no different unfortunately. |
I thought they put in £15m after the £60m revaluation. |
The holding in Wefox has been marked down aggressively in the last update and is far from being as important to the overall NAV now.In last update valued at £60m 7% of assets.So whilst not great if it continues to talk about failing the impact on CHRY is now far more limited now.With graphcore sold and hopefully featurespace nearing monetisation seems far more important in terms of strategic delivery for now and a commencement of return of capital. |
Thanks Rogen for the heads up |
hxxps://news.sky.com/story/amp/insurer-wefoxs-board-sounds-fresh-alarm-over-possible-collapse-13209649 |
On AVI they only have to announce moving above 5% and then 10% so they moved above 5% in March this year and then moved above 10% last month. So they have had months to accumulate to get above 10%. They now would have to announce any further 1% movement.They have an activist reputation but the company got backing for its continuation and capital distribution strategy not that long ago so maybe limited what they might be able to achieve here..but clearly see value."In the United Kingdom, investment and fund managers must disclose holdings in UK issuers at 5% or higher of the issuer's total voting rights and capital in issue. They must also notify when their holdings reach, exceed, or fall below 10%. Once holdings reach 10%, the exemption no longer applies, and disclosures are required for every 1% increase or decrease above this threshold" |
Wefox needs more money..so gets some headlines.https://news.sky.com/story/insurer-wefoxs-board-sounds-fresh-alarm-over-possible-collapse-13209649 |
I wonder if that includes AVI stable-mate MIGO, which has also announced a rebuilding of its position in CHRY. Impressive to see them pick up 11+% of CHRY without moving the share price much beyond 80p.
In any event, it's easy to see the CHRY discount narrowing substantially should one of the major IPOs happen this autumn and/or the Featurespace sale. And with the bad news about WeFox already out there, there's surely less downside than upside... |
Citywire....Bargain hunters Asset Value Investors has been increasing its stake in the £856m trust, confirming to Citywire that its position had risen from 10.5% in mid-July to 11.4% this week. The discount narrowed to 43%, which wasn't quite enough to make the 'expensive' table. |
Wondering if there was significant monetisations and under the capital allocation policy whether they might look at premium tender offers to accelerate capital return."The London-based trust, which invests in technology and finance startups, said the proposed capital allocation policy sets out a framework for more disciplined use of its capital. Consequently, Chrysalis "will aim at all times to maintain a prudent cash reserve" with current guidance around GBP50 million.Chrysalis said once that requirement is satisfied, it will prioritise distributions to its shareholders and currently intends to repurchase up to 15% of its share capital. It may then seek authority to continue buybacks until GBP100 million has been returned.Finally, Chrysalis aim to distribute up to 25% of net cash profits on realisations to shareholders, in order to "balance its capital allocation between further distributions...and portfolio investments". |
2,000 Workers Gone: Klarna Is First Major Company To Unleash Mass Layoffs Thanks To AI |
Oakbloke , hot off the press......Don't CHRY because it's over£50m H1 Adj. operating Income for pre-IPO holding KlarnaThe Oak BlokDear reader"Don't cry because it's over. Smile because it happened" - Dr SeussToday's article picture is a tribute to the great Theodor Seuss Geisel (Dr. Seuss) and hopefully you can recognise which famous food condiments inspired this picture!I'm not sure what connection there could be with either the Fund Chrysalis, or its holding Klarna. Our PM might say to his new best mate "es ist nicht klar"CHRY's holding Klarna (valued 30/6/24 at £100.3m) announced revenue and profit progress in its 1H2024 update. Subscribe for free to receive new posts and support my work.Pledge your supportRevenue was up 16% year on year. Gross Profit up 22%. Operating expense is static (excluding technology and product development it's down by 10% actually*) so adjusted operating income moves from a £33.9 loss in 1H23 to a £50m profit in 1H24 - an £84m improvement!*a 10% drop suggests the much vaunted investment in AI is translating into savings in "the real world". Further evidenced that revenue per employee grew an ASTONISHING 73% in y-o-y to 1H24.?In fact at net profit level, a loss of -£24.7m in 1H24 from -£155.4m in 1H23 illustrates the strong trajectory and improvement year on year.Klarna's CEO comments:Klarna's massive global network of consumers and merchants is expanding rapidly, with continued success in the US as revenue grows 38% YoY in H124. Over 68k new merchant partnerships were established, supporting further engagement from our consumers, and driving strong revenue growth of 27% in H124. This led to SEK 1tn in payment volume through our network in the last 12 monthsThe Oak Bloke had a little shopping experience at Klarna and was gobsmacked to find a "Google-esque" experience. This is referred to in Klarna's Interim Report.?Rather than think of Klarna as purely a buy now pay later experience it's actually much more. It's a way to find what you want as a shopper. I would encourage you to watch this video to understand the powerful dual online and bricks and mortar shopping experiences Klarna has managed to create.?Klarna speak to "becoming ubiquitous". It speaks to a developing ecosystem. That means working with what were once competitors - Payment Service Providers (PSPs) for example. Strategic agreements with Adobe and WorldPay are examples where they've "lost" the gateway role but embraced thousands of merchants who use those PSPs - so overall gained far more than what they've conceded. All the major PSPs appear to be available for a merchant to "plug and play".?The ubiquity for customers: The evidence is that once people start to Klarna they keep going and return for more. This is (Klarna say) due to a combination of saving time, money and assurance. Assurance means fraud protection, hassle-free returns, and delivery tracking..... all in one place.??The ubiquity for merchants: The evidence is also that once a merchant list on Klarna that the benefits mean increasing revenue retention, and growth. Klarna now has over 575k merchants, and that number continues to grow. In the past 12 months, it added over 68k new merchants and expanded strategic partnerships with iconic everyday-use partners such as Voi, Google, and Uber. The deal with Uber is to power its payments portal, with a buy now & pay at the end of the month (when you get paid) for customers..... smart.But Uber aren't the only ones - Klarna also struck a deal with travel giant Expedia/Hotels.com too.?This 5 year view is fasctinating too. Income has increased by ~2.5X, and loans accounts for a portion of that income and these are ~3X over 5 years. What I find fascinating is the 5X growth in "deposits from the public". These exceed "loans to the public" in FY24! Also the average duration of Klarna's credit portfolio is ~40 days. This means the company can recycle its capital 9 times per year (365 days / 40 days = 9.125). Assuming a 1.5% net transaction margin and 30% pre-tax margin, each $100 would generate $100 x 1.5% x 30% margin x 9 loans per year = $4.You imagine loans to be a huge cost to Klarna (or Klarna's merchant). But no. Actually deposits and the Net Interest Margin, make loans profitable, actually! And capital light with CET1 ratio of 14.9%, that's as strong as a major bank.??VALUATIONCHRY owns 1.11% of Klarna so if a $20bn/£16bn price is achieved, the result for CHRY is a substantial £74.80m uplift and a £174.80m realisation.CHRY's £100.3m valuation (as at 30/06/24) implies a £9bn valuation. Klarna's 1H24 revenue is £1bn so £2bn annualised. A £9bn valuation is 4.5X sales. A peer for Klarna is Affirm and its current revenue to (Nasdaq-listed) valuation is 5X sales (but was a much higher multiple previously).?Affirm has similar revenue growth to Klarna but isn't as profitable.Assuming 5X is a fair multiple (which seems quite conservative) and furthermore assuming Klarna continues to grow at 27% then in FY2025 based on revenue growth to £2.5bn and expectations of a 27% growth to £3.2bn then we neatly arrive to £16bn.But isn't the Klarna story a little bit like Ebay (and Paypal)? They got divorced in 2015. Until that point weren't they "an ecosystem" and weren't they "ubiquitous"? Back in 2009 they achieved $8.7bn revenue adjusted for inflation which is approximately £3.2bn today. My FY26 expectation of Klarna. Back then a $30.5bn valuation adjusted for inflation is £34bn today or 377% of CHRY's valuation.?EBay revenue and profit "back in the day".Of course you could point to the $2.39bn net profit Ebay also achieved in 2009, which is £2.7bn adjusted for inflation today and tell me I'm over egging the pudding. But with another two years could Klarna achieve that? It would require a "flywheel" effect in growth and a lower number feels "nailed on" given the £84m improvement to the bottom line in the past 12 months.But compared to Affirm leaking between $0.5bn - $1bn a year and forecast to do so in both 2024 and 2025, the 5X multiple is a little harsh.So while I will settle for concluding the forward prospects for Klarna feel to be "at least" a £16bn IPO, I also believe the 1H24 results demonstrate how the "ubiquity" of Klarna's platform and services tap into a "Bricks vs Clicks" world in a way I have never seen Ebay do. I'm probably the last person you'd call an "avid shopper", but I can see how Klarna addresses the world in a uniquely clever and nuanced way while creating an ecosystem where retailers and brands thrive, consumers are compelled to return and that ubiquity is worth something.-ConclusionKlarna is only part of the story at CHRY. You can buy CHRY for an 82.9p ask. Its NAV is 145.25p and discount is 42.9%. So Klarna is?So effectively that £100.3m share of Klarna you can buy for £57.4m. (due to the 42.9% discount to NAV) and the implied valuation is only £5.1bn so if £16bn is correct you are buying Klarna with more than 3X upside. If "Ebay" valuations are correct make that 5X-6X.?CHRY's share price and NAVFollowing the sale of Graphcore CHRY now has £50m working capital, so any realisation will be going to buy backs.£174.8m of buy backs at 82.9p a share would buy back 210.85 shares (of 595.15m) leaving 384.3m shares.Those remaining shareholders would have £50m cash and £719.7m of assets. That's a NAV of 200.3p per share (a 55p per share accretion).And Klarna's not the only IPO brewing away at CHRY.Featurespace, Smart Pension and Starling are all mooted as future IPOs or buy outs. Visa are talks for a $925m buy out of Featurespace and CHRY hold 10.61% of shares. That would be a sale at the NAV price (not at 42.9% below as today's share price suggests)-Rev BeautyThere are even upsides valued at zero in the Net Asset Value figure. CHRY is pursuing legal action against Revolution Beauty. This is based on what CHRY say were inaccurate statements given prior to CHRY investing in REVB (which it did at great loss).CHRY on 22/04 updated on its REVB claim and said "a claim of £39m, together with a claim for consequential losses of a further £6.2m. The Company considers that it has a strong case and is willing to pursue it."If it achieves that that's £45.2m or an extra 7.5p per share?So don't CHRY because it's over, I wrote. Smile because it happened.Will the CHRYing be those who miss out? Or those who join in? That's for you to decide, and potentially to smile if it happens.Try it for yourself - the ubiquity of a Klarna shopping experience. And then consider the upside of a Klarna investment experience.Try it, try it, Sam I am. Will you not try green eggs and ham?And perhaps like me you'll find it compelling too.Regards,The Oak Bloke.Disclaimers:This is not adviceMicro cap and Nano cap holdings even those held in VC stocks might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"Thanks for reading The Oak Bloke's Substack! Subscribe for free to receive new posts and support my work.Pledge your supportThe Oak Bloke's Substack is free today. But if you enjoyed this post, you can tell The Oak Bloke's Substack that their writing is valuable by pledging a future subscription. ?? |
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