Citywire Report3 May 2024 21:59
"A disappointing 33% write-down in insurance disrupter Wefox has left investors in Chrysalis Investments (CHRY) pinning their recovery hopes on the disposal of the growth capital fund announced in December and the potential flotation by credit provider Klarna. Shares in the late-stage private equity fund, run by former Jupiter managers Richard Watts and Nick Williamson, edged 0.9p higher to 82.9p yesterday on news that its net asset value (NAV) per share rose by 4.09p, or 2.9%, to 147.46p in the first quarter.
Up another 1.4p to 84.2p today, the shares have rallied 59% since last October’s lows but remain well below their 271p peak in late 2021 and on a 43% discount to the portfolio’s 31 March valuation. Asset Value Investors disclosed an 8.4% stake last month.
The £62m ‘haircut’ for the unquoted Wefox reflected a drop in the valuation multiples of its stock market listed peers, upon which more emphasis is laid as the positive effect of its last funding round over a year ago wears off. It also reflects a ‘strategic repositioning’ within the business after non-executive director Mark Hartigan became executive chairman. Hartigan was previously the boss of mutual life insurer LV= until his plan to sell the business to US private equity firm Bain Capital foundered on the opposition of policyholders. Watts and Williamson also pointed out that although Wefox achieved a full month of profitability in December, that was more a result of seasonal factors, making extrapolation to a full year ‘inadvisable’. Revenues increased to $800m in 2023 while the cost base fell year-on-year.
On the flipside, Smart Pensions, a pensions platform the managers added to in March, was written up by 24%, a gain of 3.7p per share, following its most recent fundraising. The company, which was first bought in June 2021, is the third-largest position in the £487m portfolio at 12% of assets, following Starling Bank and Wefox, which respectively make up 24% and 14%. Starling was also marked up by 19% as less emphasis is laid on the price at which Jupiter sold a stake to Chrysalis last year and more weight is placed on its growing monthly profits.
Going public
Buy-now-pay-later company Klarna also rose, with recent annual results showing 22% revenue growth year-on-year, while AI has had a positive impact on its customer service function. The company’s chief executive said the company would go public ‘quite soon’ in a number of interviews over the quarter, which Watts and Williamson believe would inject the Chrysalis portfolio with £100m in cash.
They added that the ongoing ‘likely disposal’ of a separate company should be completed in the coming months.
As part of their pitch to secure overwhelming support at the recent continuation vote, the managers said that over the next three years, the first £100m of realisations would be returned to investors – likely through share buybacks – after satisfying the £50m buffer held back for