Interims from monday:
Re Rapyd, which had a big write down, although manager says was due to comparables - mentioned Stripe - not operations etc: |
I have to say I am somewhat bemused by comments like "value will out but when", standing on a 30% discount and a continuation vote in May 2028 value will out, & 47 months is not, in the great scheme of things, very long to erase the 30% discount, especially as the bids every week that we are seeeing for micro caps is surely a signal that sentiment has turned.
In addition, anyone seeing the exit prices that SBO have achieved against book valuations clearly show that SBO's unquoteds are valued conservatively. |
OCI looks a safer alternative. |
The bubble isn't over until Bitcoin goes.
And the US big 7.
SBO may as well just say "We get paid handsomely whether you make any money or not. Meanwhile, we're going to punt some more unlisted unicorns at the top of the market.".
Rates aren't being cut before 2025 IMO. Why would they be? Possibly if the long-predicted (by me!) bad recession happens, but that doesn't help SBO's punts either.
But agree value will out eventually - guess I just don't see value at SBO. |
Just seven US shares are driving the discrepancy. All the UK trusts are making the same point, some with buybacks. Yields (though not here in SBO) are providing some cushion. I believe value will out, but have no idea when. |
 "The world is an uncertain place as I write, and equity markets may well remain out of favour for the next few months. High interest rates and uncertainty over future rates have continued to be a major negative factor affecting investment companies that focus on growth. The assumption is that these companies will need cash to fund that growth and that will be expensive and/or difficult to get. Unfortunately, the market is not differentiating between those companies with genuine issues in this regard and those that have no such needs, as is the case with the vast bulk of our investments.
One result of this is that the price at which our shares are trading continues to significantly undervalue the Company as it does not reflect the strong fundamentals of our portfolio.
History suggests that within listed UK equities, small and medium sized growth companies are often the first to suffer in a bear market but also first to rerate on signs of recovery and a change in market sentiment. A reduction in interest rates may well be the trigger for this. UK inflation appears to have peaked, and some commentators are predicting a base rate reduction as early as Q2 2024. At the time of writing, we are experiencing some improvement in the share prices of our public investments. This has generated a post period end NAV increase of 4.7%.
Your Board expects that the patient shareholder will benefit when market sentiment changes and the value and quality of the underlying portfolio becomes appreciated."
Yes, some improvement in the share prices, but not enough. The rally in the US is spreading into the smaller caps - the IWM is making bullish moves. How about some of that over here in our small caps?
Even that BitCoin malarkey thinga ma wotsit is rallying. You know it is risk on when that rallies like this.
Can we have some more bullish here pleaseeeeeee!
All imo
DYOR |
In case anyone's interested:
Discount 30%. Continuation vote in 2028. Top 8 companies are unquoted and form 60% of the portfolio.
Trouble is, there are dozens of potential things to invest in when the markets turn. |
Thanks for #127
So, everything has it's price but what I conclude is that there is no way for me to work out what the NAV really is and therefore how am I supposed to take a punt
I guess what I can also work out is that there's a crazy amount of tech investment out there relying on follow-on funding which just isn't going to happen |
Everything has its price @Jonwig, tho that's the best I can say :) Schroders, strewth. Can't think of anyone less deserving of their fees. |
Spec - I think I capitulate! |
 SB-Oh.
Front page of Sunday Times Business:
"Blow to British tech unicorn as backer writes off stake".
"The heavyweight investor that backed Apple and Google in their early years has written off the entire value of its stake in one of Britain's most promising technology start-ups".
Keep reading and you find out that zero is Graphcore..
There's some real nuggets:
"Graphcore ended 2021 with $140m of cash, and a further $187m in short-term investments. However, it lost $185m that year on revenues of only $5m...."
SBO holders, this is the sort of sh*t Roger, Ben, and Tim have been punting your money into. Graphcore topped out at a £3.4bn valuation, on $5m of revenues, and Sequoia Capital now value it at zero. Nada. Nothing.
"BG's Schiehallion fund has cut its valuation of Graphcore from $3.4bn to $1.7bn and SBO has cut its valuation [of Graphcore] by 25% in its latest revaluation."
Most incubators, VCs, PEs are chicken sh*t. They invest at increasingly crazy valuations, boosting their previous investment valuation in the same co's, until it all comes crashing down (assuming they haven't punted investments to each other first). Yet when it does start to fail, it's finger-in-air bullsh*t. BG think Graphcore's fallen from $3.4bn to - gasp - $1.7bn, exactly halved, implying no genuine calculation whatsoever. Sequoia can see that $185m losses on $5m revenues in 2021 means all the money's gone by, um, about now, so Graphcore will need to raise ASAP. But from whom? Not Sequoia. Not poxy, tiny SBO. Not BG, who went all-in on unlisteds in the boom.
Not from SVB bank borrowings.
SBO cut the valuation by 25%, BG by 50%, Sequoia by 100% - who's right? No prizes for guessing who I think is right, but clearly if more cash (then some more, and some more) is needed, billions isn't a correct valuation.
Doesn't this apply to most of the investments in early-stage but later-round rubbish? The bubble is over, the winners will be the few with profits (any?), and the few with cash to pull investments through the post-SVB, post-bubble world. The same happened in 99/00, most went to zero.
At least the lamentable SUPP has been through it (some of it!) already, hence 12p from £1 listing, 8 years ago now. How long is "Patient"?
Rant over. Link to SBO's Graphcore RNS, when they invested at a $2.8bn valuation:
Just a week ago, threat to move to US, begging letter to Rishi to use some of their chips - Sequoia's write-down post-dates this: |
Schroder British Opportunities Trust plc ("SBO" or the "Company") is pleased to confirm that one of its private equity investments, Mintec, the leading global provider of price data, analytics and forecasts for agri-food, has announced the acquisition of AgriBriefing, to establish the largest agri-food-focused price reporting agency (PRA) and global information provider.
Good news, I guess, but what we really want is SBO's private investments to be taken out at a huge premium! |
EI - thanks. Looking at employee comments on Cera, many are very positive. Even so, pay of £11-12 per hr isn't much encouragement unless there are extra allowances. |
Jon, social care is one area I know pretty well now most domiciliary care providers use a degree of tech during a homecare visit - perhaps they build upon the sometimes rudimentary tech used .. |
Yes looks interesting at the current 35%-40% discount. Picked up some yesterday. |
The one that does isn't keen to talk about them!
I glanced at the 2021 accounts of Cera at CH. It will be heavily lossmaking for maybe another couple of years, so another fundraise, I guess. But what it does is precisely what the NHS says is badly needed: tech assistance for home living.
Rapyd Financial is an Israeli company and could be due a float (on NASDAQ?). |
Research note, "SBO is trading on a wide discount despite its highly differentiated approach…":
Company-sponsored, of course, and they are clearly worried about the discount. The unquoteds need a bit of M&A activity to stir things up. NAV around 105p so nearly 40% discount. |
Sadly I do not believe Schroders and their in-house valuation of the P/E investments. I regard it as all tied up in their fee which is higher the higher the NAV.
However, I went and took another look at the fund. It's not for me. I'm not excited by their quoted investments (On the Beach !!!) and I can't get any grip on the unquoted.
I'll continue to leave it on my monitor |
Hmm a lot of far wider discounts out there - eg CHRY - or most of the big, experienced PE IT's eg HVPE. Who also seem to be holding/increasing in NAV in this Goldilocks period (multiples down, revenues up). |
Interims:
They insist their PE portfolio has held its value as opposed to quoted ones. hence the NAV has only fallen by 3.4% whilst the discount has widenedsubstantially.
If they're right, (and reputational damage to Schroders would be significant) these are good value, given some unquoteds are close to IPO stage when markets imp[rove. But one dud seems to be Graphcore. (AI hardware is tough!) |
Thanks @Jonwig, having a quick look at it.
@CC2014 - agreed, everything has its price. I'd question when SBO would ever give any returns beyond "Greater Fool" tho. They're tiny, yet they talk as if they're big guns.
"Your Board is disappointed by market conditions reducing
shareholder return over the period"
[What, it wasn't the stock picks?]
"...Your Board
is pleased with the diversified portfolio the Portfolio
Managers have constructed since IPO across a broad range
of leading UK businesses, both listed and privately owned,"
"Equity valuations are seemingly disconnected from fair value
in many sectors and market sentiment is driving pricing
rather than fundamentals"
[No - it's the bursting of the ZIRP bubble, where the sort of no-profit, minimal t/o, capital-hungry Unicorns come a serious cropper.]
"...We utilised the authorities provided by
shareholders to purchase 100,000 shares to be held in
treasury to reissue when the Company regains its premium
rating to NAV"
[Optimistic!]
"...Will target companies with
an equity value between approximately £50 million and
£2 billion at the time of initial investment"
[SBO itself has a market cap of £56m - it'll never hold any meaningful stake or have any meaningful influence on any of its "30-50" holdings.]
Might it dcb? Could do. But I'd note:
"In a challenging environment, the private equity holdings
have continued to perform strongly and the overall resilience
of the private holdings has been particularly pleasing. The
Company’s unquoted holdings saw an increase in value of
32.4%, offsetting 8.2% of the full year decrease in NAV"
So for end-March, before the bubble burst, they uplifted their unquoted valuations by 32.4%. It's possible they've picked some future Amazons & Googles, but I'd wager not.
Edit - sorry for length - this jumped out:
"We are delighted to have completed these three new private
equity investments in strong, UK-based, market leaders. We
had been tracking these businesses for an extended period
of time through our long-term relationships with private
equity firms Synova, Bowmark and Vitruvian, and
supplemented these efforts with enhanced due diligence
made possible by the close working relationship between
our public and private equity teams, which provided the
widest possible lens for assessment of our new investee
companies. We expect these businesses to be resilient to the
ongoing macroeconomic and market trends and are excited
to be part of the next phase of their growth story.
As at 8 July 2022 the Company holds a cash balance of
£2.5m. "
They really do talk the talk. What they've invested in isn't necessarily bad - it's the valuations they've gone in at that I'd question.
£2.5m cash. |
Here's my view for what it's worth.
I don't rate the fund managers but there comes a point when the discount to NAV may be sufficient to overcome my concerns, so I've spent as little as 15 minutes looking at this.
I find it incomprehensible that given the large sell-off since Christmas that the fund manager has somehow managed to pick a great set of unquoted holdings when they can't demonstrate they can do that with the quoted ones.
The holdings are difficult to get a grasp of without spending considerable time and effort and it seems likely they should have already been written down. Of course they are illiquid and the fund manager can avoid this but that just intensifies my concerns.
So, I'll call the real NAV somewhere between 85-90p. That still leaves the share price at a decent discount but not an amazing one certainly compared with some of the other PE.
The next issue for me is that the opportunity cost of investing in a similar risky asset might be a 7% return. Certinly I can get that on any of the high yield bond funds or some of the renewable funds and they seem far less risky to me. I don't particuarly like the property REIT sector at the moment but again 7% is do-able and the risks might be seen as equivalent or lower.
So, I'm a little unenthusiastic mostly because I can't see the fund manager making a much better return than what I can get elsewhere, or even if it is there which I doubt the fund doesn't make me interested enough to devote a couple of hours of my time to investigating it further.
I'll keep it on my watchlist though. Every man has his price. |
Latest is R&A to end-March 2022. |
I've not looked at the holdings in a while. Has there been anything since the Half Yearly for end-2021, beyond yet more unlisteds punts?
That NAV looks highly suspicious, as much so as SUPP's! SMT claimed recently that had they used market valuations on their unlisteds, they'd now be writing them down 79%.
Fair point on gearing - some stonking PE discounts on eg HVPE, PIN. Quality co's with quality managers, and proven outperformers (not that I hold either atm. Agree with your last sentence, albeit very overweight the small REITs). |
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