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To realise value through exiting the investments over time, the Company invests in early (but not seed) or later stage investments in unquoted fintech businesses.
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Augmentum Fintech plc
Portfolio Company Onfido Acquired by Entrust
Augmentum Fintech plc (LSE: AUGM) (the “Company”), Europe’s leading publicly listed fintech fund, notes the announcement by Entrust that they have completed their acquisition of Onfido, a portfolio investment of the Company.
Augmentum’s understanding of the terms of the transaction implies a valuation of the Company’s investment in Onfido at £10.1 million (30 September 2023: £9.7 million representing 3.6% of the value of the portfolio).
The Company initially invested in Onfido the AI-powered digital identity verification business in March 2018 with a £4.0 million investment as part of a US$50 million funding round, with a further £3.7 million in December 2019. This exit will represent a multiple of 1.3x cost and an IRR of 6%.
The sale to Entrust, a global leader in identity, payments, and data security solutions, is Augmentum’s sixth exit, each of which has been at or above the Company’s holding value.“
There is an article in this weeks IC on which Investment Trusts are banking on set to benefit from am increase in IPO’s, which mentions AUGM:
“ Other trusts could also stand to benefit. Mick Gilligan, head of managed portfolio services at Killik & Co, pointed to Zopa, the online bank expected to IPO in the near future, and an 11.6 per cent position in Augmentum Fintech (AUGM).
Topped up and bought my average down , but its like trying to hold smoke, it just keeps slipping!
Looks like another successful exit for AUG from Onfido at a nice premium to stated value in previous results. Hopefully this will start to close the discount as even more of the NAV will be backed up with cash.
NEW FEATURE: Diving into Augmentum Fintech's latest triumphs: £22.8M from NatWest's Cushon buyout, strategic boosts to Volt & Grover, and a disciplined approach that's shaping the future of fintech.
https://smallcompanychampion.substack.com
https://twitter.com/LEMMINGINVESTOR
Part 3
Analysts Gavin Trodd and Ewan Lovett-Turner at Numis Securities like what they view as a small but unique investment company with above average charges.
They said: “We believe that the fund may be an attractive long-term investment, albeit that the early-stage nature of the companies means that it may not always be a smooth ride for investors.”
Questor says: buy
Ticker: AUGM
Share price at close: 100p
Part 2
Questor first tipped Augmentum in January 2019 at 98.4p, then again at 117.5p in March 2022 and most recently at 109.3p in August last year. If we had foreseen how bad the slump would be we would have been better in selling 20 months ago. We didn’t and, at the risk of sounding like a broken record, the shares still look highly attractive on a 38pc discount to asset value.
Having held on for so long, it would be wrong to abandon Augmentum when its investments are bearing fruit. While the shares have gone back to square one, most of the companies it invests in have progressed well. The top 10 holdings accounting for 82pc of assets grew revenues by an average of 74% in the year to September, according to the company.
Under chief executive Tim Levene, Augmentum has made five profitable exits from investments since launch, most notably the sale of broker Interactive Investor last year to fund management group Abrdn from which it netted £42.8m. During the latest half-year, it garnered a further £22.8m from the sale of zero carbon workplace pension provider Cushion to NatWest bank, a deal on which it made 2.1 times its original investment.
That transaction took the total figure Augmentum has raised so far in sales that have achieved an average 30pc mark-up for shareholders to £84m. It also confirms how desirable Augmentum’s fintech start-ups are to big financial institutions as they seek to modernise their businesses, adapt to new technologies like artificial intelligence and cut costs.
Augmentum has used its cash windfalls wisely, making £6.9m of follow-on investments in Volt, the account-to-account payment provider, Habibo, a digital mortgage broker, and Berlin-based Grover.
That support to portfolio companies has been balanced with buying back £4.2m of shares in a bid to narrow the wide discount but also to lock in a gain for shareholders from repurchasing cheap stock.
While the company is unable to raise more money from issuing shares while trading on a discount, it is confident that with an average of 29 months of funds, its top companies have what they need to achieve profitability. Tide, the biggest holding at 15.2pc of assets, is already profitable in the UK and is expanding rapidly in India.
Mr Levene believes markets are showing early signs of a recovery with interest rates held steady in the UK and the US.
“This signals a cautious yet hopeful economic outlook,” he told shareholders.
“This, combined with the continual move towards the digitisation of financial services and Augmentum’s disciplined approach to both investment and valuation will, we believe, offer exceptional opportunities for us.”
Good article in Telegraph
https://www.telegraph.co.uk/money/investing/keep-faith-augmentum-fintech-venture-capitalist-rate-rally/#:~:text=Shareholders%20who%20backed%20the%20launch,off%20a%20three%2Dyear%20low.
Part 1
Keep faith with a prudent venture capitalist rallying on rate hopes
Questor share tip: Augmentum's disciplined investing positions it well for future growth
Gavin Lumsden14 December 2023 • 6:00am
Shareholders who backed the launch of Augmentum Fintech in 2018 have had a frustrating time. But now is not the time to give up on this venture capital investor in challenger banks and financial services disrupters, with shares in the investment trust bouncing off a three-year low.
Since the end of October, Augmentum shares have rallied 25pc, buoyed by hopes that interest rate rises, that have crushed valuations of early-stage companies in the past two years, may have peaked and could be cut in 2024.
Half-year results in early November demonstrated how over-sold the £278m portfolio of unquoted businesses had become. With the shares slumping from a September 2021 peak of 173p to 79p over two years later, Augmentum’s market capitalisation had fallen below the total of its £51.8m of cash and its top three holdings: in small business lender Tide, technology subscription platform Grover and online bank Zopa.
This ignored £125m in the fund’s 21 other investments – a ludicrous situation, given Augmentum’s record in refusing to pay hyped-up valuations for technology companies at the top of the market in 2021, thus avoiding the big write downs suffered by other growth capital funds.
In the six months to September, the value of its investments held steady, edging 0.8pc higher.
The rebound has lifted Augmentum’s market value to £173m, but at 98.7p the shares today are effectively back where they started at the trust’s flotation in March 2018.
That’s despite the underlying net asset value (NAV) per share growing to 160.2p at Sept 30. In other words, shareholders who bought in at the initial public offer (IPO) have seen no growth in their investment despite the portfolio generating a total return of about 60pc.
That’s the theory but in practice rarely leads to better share price performance.
Better use of the ££ as dividends would push the share price more effectively.
Tipped by ST in the IC this morning
Good to see AUGM Number 15 on the Leaderboard Up 8.52% at 90.82p on the back of today’s interim report although it has just fallen back to 88p:
“ Financial highlights
• NAV per share after performance fee1 increased by 0.8% to 160.2p (31 March 2023: 158.9p).
• IRR of 16.6%2 on invested capital since inception (31 March 2023: 18.5%)
• Available cash at period end of £51.8 million (free cash of £48.0 million) with no debt (31 March 2023: £38.5 million).
• Repurchased 3,918,878 shares over the period, at an average price of 99.2p per share.”
This share price of 90p is totally ridiculous against an NAV per share of 160p of which £51.8 million is in cash. The assets are performing well:
“ The top 10 holdings, which represent 82% of portfolio value, grew revenue at an average of 74%3 YoY and have an average of 29 months cash runway. 4 of the top 10 positions are cash generative.
• The sum value of the top three holdings in Tide, Grover, and Zopa, plus current cash, is above the Company’s market capitalisation. These positions continue to demonstrate their credentials as fintech market leaders, growing revenues by an average of over 1,200% since the Company’s investment and are either profitable or capitalised until projected profitability.”
This is due a large rerate and I am looking forward to the Investor presentation on Thursday.
Schwee
You are correct if the company has to borrow to fund buy backs. Borrowing has a cost that's true. But you're presumably making some sort of sweeping statement here, or otherwise you clearly don't understand AUGM as there are no borrowings. Some minor lease liabilities of sub >£0.5m if you are picky.
Idle cash has an opportunity cost too. Cash returned to shareholders via buy backs improves the share of assets so is largeness - not largesse - in AUGM's case.
You also don't appear to understand AUGM's incentive policy either - they don't get rewarded based on simple NAV accretion, which again is a way other companies' management can game the system. Sweeping statement - doesn't apply here.
If buybacks increase the NAV per share, one wonders why equity capital is needed at all. The answer is that it is only a short term sugar rush as the borrowings to finance this largesse will over time cost more than they would have done had the buyback not occurred in the first place. But of course the management would have moved on by then, leaving their successors to pick up the pieces.
Tapman you’ve misunderstood.
Imagine you own a time share that you can use once every 100 weeks and then there’s a buy back and now you can use the time share every 85 weeks. Your share in that timeshare has gone up.
Buy backs increase the Nav per share so are usually positive
Perhaps I am (hopefully) getting this wrong, but is the subtext "we get more, so you get less"? only askin as a PI! DOH
Added more on today's drop, got my full position back. It's crazy how undervalued this is now.
23 October 2023
Augmentum Fintech plc
(the "Company")
Irrevocable Share Repurchase Programme
At the Company's last annual general meeting on 19 September 2023 (the "AGM"),
the Company's shareholders granted the Company a general buy back authority of
up to 14.99% of the Company's issued ordinary share capital.
The Company has appointed its joint brokers Peel Hunt LLP and Singer Capital
Markets Securities Limited to manage an irrevocable programme (the "Irrevocable
Buy Back Programme") to buy back ordinary shares within certain pre-set
parameters. Any ordinary shares purchased by the Company will be held in
treasury. The Irrevocable Buy Back Programme will commence today and will run
until publication of the Company's Half Year Report for the period ended 30
September 2023.
Any shares purchased in the Irrevocable Buy Back Programme will count towards
the Company's general buy back authority of 14.99% of the Company's issued
ordinary share capital, as approved at the Company's AGM.
The Company confirms that it currently has no inside information.”
Hopefully todays RNS will start to address the large discount to NAV that accounts for the current very undervalued share price.
Bought back at 90p… quite surprised it dropped back down despite the fundamentals havent changed since 6 months ago
I hold both and you might be right. Molten has a deeper discount due to despair. I don't think AUGM has seen despair.
It has had a much shallower downward trajectory.
Personally I'm glad to hold both and plan to continue to do so.
Decided to move my cash to molten ventures as I see bigger upsides there. Good luck guys
Guess thats pretty strong sell signal….I always do the opposite of IC’s recommendations
“SMALL COMPANIES
This fintech fund's 37% discount is hard to ignore
It's cash-rich and delivering healthy gains with a series of success stories
July 5, 2023
By Simon Thompson
Net asset value (NAV) up 2.4 per cent to 158.9p
Closing NAV of £277mn after performance fees
Post period end disposal of stake in Cushon
36.5 per cent share price discount to NAV
Investors are taking an incredibly conservative approach to their valuation of Augmentum Fintech (AUGM:101p), the first publicly listed fintech fund.
Despite delivering an impressive 18.5 per cent internal rate of return (IRR) on invested capital since inception, making £78.5mn of realisations from five exits, or three times the capital invested, shares in Augmentum trade on a hefty 36.5 per cent discount to NAV of 158.9p. Moreover, the group managed to deliver modest NAV per share growth last year, too.“
The article continues in some detail on IC site.
SteelTrader9,
Actually it's you who seems to be missing the point. Refer to Page 26 of the annual report, as well as Note 4 and Note 19.9 because there's quite a number of factors you are failing to consider or don't understand however much you think you understand how Investment Trusts work.
1/ Venture Capital fees are usually "2 and 20" (2% mgt fee and 20% of gains) so why would a lower "1.4 and 15" (with added hurdles) make you worry (alas!) for poor Alas_Smith?
2/ AUGM's Portfolio Management Fee is 1.5%, yes, but drops to 1% of NAV after £250m. On a current NAV of circa £290m that's approximately a 1.4% blended fee.
3/ The Performance Fee is calculated on 15% of cash gains i.e. that 85% of gains are kept by the company, and that this is subject to a 10% *REALISED* ROI hurdle. But also that that hurdle is subject to subsequent clawback.
4/ The hurdle was met in FY2023 on an *UNREALISED* basis on 31/3/23 so the performance fee has been provided for, but hasn't actually been paid - and won't unless and until the gains are later realised.
5/ You quote a 9.1p per share cost for FY2023 but that's not true either. Per my point 4, above, the 9.1p a share is a cumulative provision and if you look at FY2022 the provision was £15,265,000 so the performance fee for FY2023 is actually only £1,252,000 or 0.73p per share - about 12x less than what you believe it to be!
6/ Importantly there is a complete separation of duties between the Non Execs and the Portfolio Managers. The non Execs do not access/benefit from any performance fee, so AUGM has checks and balances.
To conclude, AUGM's fees aren't as harsh as you believe them to be. And in AUGM's defence is possibly one of the only VC ITs which has (somehow) pulled through FY2023 still making a gain. I do appreciate it's a smaller gain than FY2022 but it's an impressive performance nonetheless. Paying a slice of excess gains when I'm making a minimum 10% ROI seems a very reasonable deal to me. What FinTech investment vehicle would offer better terms than AUGM? What FinTech IT outshone AUGM in performance in 2022?!
You seem to be missing the point Alas_Smith, the management fee was 1.5%, then on top of that a performance fee has also been taken which is worth 9.1p NAV or 5.4%. Therefore the total % fee that management have taken is 6.9% - very high.
I worry for your investments if you don't think management fee is of interest when making investment decisions.