Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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JPM et all have agreed a £150m RCF against a £1.3bn private equity portfolio, a trained monkey could do that. There is no information content on the appropriate valuation on them putting that facility in place. Auditors no little about valuation in the real world, its not what they do. they check there is a process and valid inputs which as I have explained there can never be as they dont have a long term IV input, so its really driven by comparable markt deals in the private space, or in other words a herd instinct. When you asre in the realm of putting multiples at 20x, 30x, 40x revenue or whatever you want it is not science, it can never be. At the end of day it comes down to what these private market investors are prepared to pay on the funding date for a potentially large TAM.
As for the valuations the lenders and auditors have all had a look, especially since the Forward deal.
The lenders can evaluate quarterly.
If there are companies like Ledger that raised at same valuation as previously and others like Isar that did so at higher valuations then that can be taken as an indicator as well.
As for returning cash I believe it would be irresponsible to do so without looking also to scale back debt.
I am talking more about introducing dividends or buy backs as an option rather than point blank refusing.
They got a recent unexpected sale of Perkbox. Probably about £20m.
Stick it in a pot. Wait for another decent trade sale. For example, M-Files, which is profitable on 100m plus revenue. Maybe a few million from Graphcore. And then sell down some Revolut on the secondary. There were buyers recently for Stripe employee shares so there would be plenty of buyers for Revolut.
As I said activist investors and hedge funds are starting to sniff around holdings in unlisted companies.
The board need to get a bit more realistic rather than threatening to delist (as per annual report) if an activist fund gets involved.
Senator - you remind me very much of a frequent poster Sage on this board.
You make some good points but it is difficult to address them as a lot of things are jumbled together in one impenetrable paragraph.
Regarding Aiven. Their last accounts showed 67m Euro revenue. This was double the previous year. It also occurred when there was a significant downturn in the cloud market, which has since relaxed.
The market is valuing the MV holding at a very approximate 28m dollars. MV wrote down their holding from the 3bn valuation from £105m to £85m. So they have it valued at about 2.4bn. But divide that by the MV discount and it's seen to be worth about 800m.
Aiven has a close comparable listed stock in Confluent. Current sales to price ratio of 13.
If we conservatively assume latest year revenue of 100m then a valuation of 1.3bn would be fair.
If they have had a better year then this would of course be higher.
Rapid revenue increases are quite possible as UI Path doubled and even tripled revenue when it was taking off.
The point is that the current SP is reflecting a further discount.
I had big doubts about the Aiven valuation but I have started to get a better feeling about it.
Confluent say the Team is about 60bn dollars and growing at about 10% a year.
I am less sure about Thought Machine although there is talk of them looking to IPO and I doubt that would be likely if they were doing worse than previous years.
I believe this will make a new low in the short term. FTSE is at all time high and yet this still sitting at 230s.
If it doesnt follow FTSE on the way up, it will certainly follow it on the way down.
Good luck to all
When you buy a Pref share the value has two components; the liquidation value and the probability of that and a Leap option with strike equal to the conversion price. Valuing that Leap option can never be precise as we have no market implied volatility input. Valuing the Prefs on basis everything is converted is not the correct way to do it because at the date of the report they havent converted. when the FCA do their review this will become more of an issue. This is to say nothing about the differnt priorities of different classes of prefs, can they vote or not, what liquidation preference they have, do they convert 1:1....there are loads of issues and I know that not one shareholder, including Blackrock and Irelands strategic fund has the answers to all this. This is why when you hear Mr Wilkinson talk about valuation it is so vague as he knows he cant answer properly because of NDAs. private company valuation is more fiction than fact im afraid. The last set of accounts from Thought Machine had sales of £42M and an operating loss of £73M. Last valuation was circa £2.2bn. Lets assume 2023 sales are £120M, thats still 20x Sales. Is that the right number? what about 10x, maybe 40x. Who really knows. what I do know is the FCA wont solve the difficulty of the material judgement behind private valuations and therefore it is fickle and when it moves can move a lot. Time might sort everything, but it will take time.
Thank you EyesOfBlue, a very useful breakdown.
In the meanwhile, I have added another chunk today. Time will determine the folly or wisdom of this decision.
Nothing demonstrates the difficulty of private valuation as well as Aiven, the third largest holding. May 21 post money valuation $800M, Oct 21 $2bn, May 22 $3bn. Grow has it at £83m, my guess is they own circa 5%. So they are valuing it correctly at a discount to last round but the private market was on steroids in late 2021 early 2022 and as you can see from all PE listed valuations, SMT good liquid ex at 60% discount on privates if you assume their large publics deserve no discount, MSFT et all. The public markets just think the private market is way over the top, that is why there is a log jam in the capital recycling. On secondaries its a buyers market not a sellers as everyone knows this. Grow spent £311m in21/22 financial year, the largest amount in their history and realised £126m and yes got a £363m FV movement. They are now paying the price. Because they invest mostly in Pref shares which can have many different terms and because of NDAs cannot reveal all the details (and the detailed terms affect valuation) they and shareholders are fighting with their hands tied behind their backs. The information asymmetry makes these unsuitable public vehicles, its that simple. Also they cant return capital until they get much much bigger, otherwise they get diluted when the companies come back for funding which they do regularly in the A/B and seed stage. They have about £70m cash and undrawn £50M to support a portfolio of £1.3bn, there is no chance of a capital return or dividend and they cant sell at a fair price. This is why the people in the market describe conditions as among the worst ever but they caused it themselves by being too exuberant in 2021 and 2022.
I think a lot more pressure needs to be put on the board to return capital to shareholders.
The portfolio is now incredibly bloated and yet they continue to make new investments and refuse to consider anything like buybacks or special dividends.
As an example, Chrysalis are saying that if there is a successful IPO of Klarna, they will use the cash to pay a dividend.
I think there needs to be much more focus on paying down the debt and getting into a position to reward shareholders for their patience.
We need an activist investor to get on board as at present the board are like kids camping out in a candy store.
If they really think their Revolut holding is worth £75m then get selling it on the secondary VC market. They have previously said this could be possible if they were at risk of breaching debt covenants.
Shareholders should have got a payday from the UI Path IPO, which was a massive return. Instead the funds were invested at the peak of the bubble and basically burnt so that MV were left having to raise capital with significant dilution.
Great link thanks
At some point market will revalue grow. probably sharply
No idea if this link will work, but if not it’s all on his Substack blog / website.
https://theoakbloke.substack.com/p/grow-green-shoots?utm_source=profile&utm_medium=reader2
The worry for me is not the prospect of de-listing but why investors are not really interested in tomorrows winners. In a sense, chucking money into the winners today is easy peasy but will only last as long as the merry-go-round has momentum. At some point the next swing or slide or springy toy will have focus.
An investment in GROW is, right now, considered as something of a poor decision, the dog in the market complete with fleas and quite possibly rabies. The world is consumed with the prospect of AI and provided that AI or Machine Learning or some other vague and perhaps ambiguous term is used, then investors HAVE to include it in their holdings.
And so, those listings attract buyers - a bit like flies to a fresh turd - chuck in some delicious fruit and the investors go wild - the reality is that the resulting company is still a turd.
Right now, it seems that the price of the assets in which GROW has interest assumes that most will go bust. Yeah, they might, but not all at the same time and certainly there might even be some that are disposed and profits banked or losses contained.
Perhaps an outcome for investors is putting a "for sale notice" to attract a big fish such as III to mitigate risk or expand breadth of focus?
Thanks for the clarification.
Sales growth of cord portfolio is in all annual and half yearly reports. it can be misleading at the company level as fast growth from a low base less impressive than fast growth from a large base.
never the less a key kpi as it averages in the slow burners as well as high growth. they said in methodology they weight it by company nav so meaningful average
Where do you get your sales growth from Steph? I have pulled the accounts for a few and have only seen that in some non core, but then again the accounts look back to 23 year ends so would be not the most up to date position. I would like to understand it relative to the size of the investment so I know this is not cherry picking unrepresentative numbers. Did they claim 50% revenue increase last year as well?
What part of Nav calculation do you think management misunderstand & what do you mean by "underweighting complicated preference shares"? The Pref share has liquidation preference but no voting rights. What are management underweighting?
On average across whole core portfolio 50% plus sales growth so pretty fast
I hope you are right Steph. I would have thought any high growth companies in the mix would have been more proactive promoting their ongoing success story and only be reliant on the vc investors to confirm and embellish.
OUr SP appears to be at a large discount to NAV/share for the following reasons. .
1) FSA misapplied regulation confusing a 100% liquid retail trust with an illiquid closed trust holding the same assets. The retail wrapper creates a mark to market in between (bi yearly) NAV/share calculations during a market downturn (buyer beware) so no need for FSA to stick their nose in. Risk reward adjustment covered by market mechanisms.
2) Retail wrapper creates a black box of limited information on the underlying assets that causes excessive anxiety in bad times but was not a big problem when the times were good.
3) has been a verified decline in NAV of VC tech start up sector although drop appears to be ending. Most of decline concentrated in last round and IPO end of value chain. As the SP’s fo medium sized traded tech recover IPO and last round market may follow.
4) misunderstanding of NAV calculations by GROW management and underweighting of complicated preference share protection.
Way back I stated on this blog that we in the long run should trade at a 70% premium to NAV/share due to rapid NAV growth and the inability of retail investors to get that rate of growth in any other way. Maybe that 70% premium will never happen. However our historical average is a modest premium to NAV/share. We will return to that at some point plus our NAV/share will start to grow again (within a year) and pretty sharply due to sales growth.
Delisting would be worse as any shares held in an ISA would have to go in a General Investment Account.
And if they opted to wind down would take years to get money back.
Graphcore was one of the biggest components of the portfolio about 4-5 years ago.
By valuation it is currently 15th.
RIsk for me is GROW going private again. While that would be a a higher SP than now would not be more than 50% premium -well below what I think our medium term value is and leave me permanently out at a discounted price. For now the retail wrapper is destroying value. That will pass but when?
Problems of FSA regulation have been there in full since 2018 but only have hit SP since the downturn (unless you consider our 11.82 high as not high enough). Maybe did not matter when the mood was good but exaggerates the shift down when the mood is sour.
It would be nice to have a reaction to mirror that from III (in which I have interest) after a capital markets seminar.
With III the principle investment that is the driver for the share price is the supermarket chain, Action. The main holding for GROW seems to be Graphcore where, despite all the hype on AI and processors, it is not translating (yet) into meaningful return.
I like to average holdings up and, perhaps with GROW I will be able to do so in the future, but for the moment Graphcore is an unloved asset
FT reporting today that some renewable energy trusts having to consider delisting and winding down.
They are unwilling to raise capital as don't want to dilute existing investors.
May lead to additional interest in the sector from Special Situations funds or hedge funds. Elliott have just taken a stake in Scottish Mortgage IT.
Still main risk for me here is the delisting possibility.