Member Info for sageoflondon

Cazoo is now below a dollar a share - if it stays there for 30 days or more it could be delisted.

I have no idea who is selling. Could well be a shares on loan and shorting activity. Otherwise I'll wait for the announcement if it comes.

My view - rates won't go to 1970s levels, but they don't need to in order to cause considerable pain. I am a good example in some ways. I haven't borrowed a large mortgage multiple by modern standards - 2.5 times salary at today's numbers. That's comfortable. I fixed 9 months ago. If I fixed for 5 years today my monthly payment would be 35-40% higher. That would be manageable but would have an impact on my disposable income. A lot of people have borrowed 3-4 times income and don't have the same cushion. Ok some have no debt at all I get that. But either way even a couple of percentage points will hurt people - I am not concerned as I could likely clear the debt after 5 years barring disaster across my whole portfolio. If rates got anywhere near 10% house prices would be significantly lower and we would have a severe depression and sovereign debt issues all over the place.

Energy price rises will level off, that in turn means inflation stabilises. I don't see prices coming right off in the way you do until some of the investment comes through - that could take 6-24 months. Some production increases much quicker. All of this ignores Ukraine escalating into Moldova etc. If Russia were to attack a Nato country we are in a whole different game and any of what I have written should be disregarded. Inflation will eventually come down though and that could happen a little faster than people expect once energy finds it's level.

That situation is very different in my view. Prior to Covid, whilst the technology market was doing well, it was nowhere near as overvalued (on any metric you care to use) as it was at the start of December 2021. The Nasdaq was at 9150 Jan 2020, down to 7700 on the 1st March 2020 due to Covid. Rates were however very low, inflation muted. A great deal of uncertainty. Everyone made an assumption based on a few months of experience that technology would benefit and the Nasdaq went up to 15,644 at the start of December 2021. Then war, interest rate expectations, inflation. Very different. The Nasdaq is around 10,800 still significantly above where it was pre-covid. Some companies benefitted from Covid - Peloton, Zoom, Moderna etc. Some of those have now come back down to earth somewhat - that's precisely why we have had Cazoo, Deliveroo, Just Eat, Ui Path, Trustpilot sky rocketing then falling back to earth - there are a lot more examples I know. Overall there are not so many companies that will realise an ongoing Covid benefit - maybe Microsoft, local businesses (coffee shops etc) with WFH, vaccine makers etc. But much has changed - a lot of other companies will lose out - transport into cities, city based services to staff no longer in the office full time etc. The Nasdaq however is roughly 20% above where it was pre-Covid in January 2020 when all looked well, low rates for the forseeable future, inflation under control and no war and sky high energy costs. Very different at present. One could argue that Covid caused a temporary (unjustified blip in many technology valuations as investors ran scared from airlines, hotels, travel, leisure, manufacturing etc to the only sanctuary they saw - technology. It could be a long road back to those sorts of valuations - if ever. Some companies will globally lead but there will be only a few Amazons, Googles, Apples and Metas along that road. A lot will also be the Yahoos, Ciscos (still not back to where it was 20 years or so ago), Wirecards, Pelotons, Theranos etc. Really dangerous to hang on or anchor to prior share price levels - they aren't really relevant now. Broadly markets will oscillate between despair (we aren't there in my view- there isn't real fear as such) and exuberance (we were likely there with things like Cazoo at the valuation it IPO'd at!

I think the market knows exactly how to value it. Similar across the board. Look at SMT at present. The unlisted portion of that portfolio is getting hammered as well - you can see the listed NAVs etc. It's always more difficult when 'sentiment' plays such an important part in the valuation - if you have something that returns 10% ROCE, 5% dividend etc it's a lot easier to come up with a value. When the entire return is dependant upon profit on sale / IPO etc there is going to be a lot more sentiment involved.

I think it's likely we will see the UK based rate increase by at least 0.25% this week, more than likely 0.5%. The US is more likely to increase by 0.75%. That would leave UK rates at 1.5% if the larger of the two - still very low by historical standards. Along with the tax increases and inflation though, enough to have a significant impact on spending. Hopefully (once higher energy costs have fed through), the inflation rate should moderate over the next 6-18 months.

Not convinced it will happen though. In reality the cash on hand is pretty low given nature of funding requirements. Funding requirements can come along pretty quickly without too much notice. In addition to that the chance of bringing in new investors to an investee company are often dependant on current participation. Not having cash on hand to invest can have serious consequences if alternatives aren't available. I would imagine they will be prudent and keep on hand for as and when required.

Given the amount of on hand cash and share discount to NAV - if the NAV stands up it would make sense for the company to purchase it's own shares - this would close the discount significantly and reduce volatility. In addition to this if the share price represents such excellent value I would also expect the directors to be investing substantial sums. We haven't seen either so far. In reality we might see the odd director purchase, but nothing significant in my view - we should be out of the close period now so they can invest. Most will however likely be exposed via 'carry' which possibly explains lower levels of direct shareholdings in the parent. Not sure how that works at Grow. Just a volatile market that doesn't favour these types of companies at present - i.e. not making a profit / cashflow negative.

I am not referring to those - I'm not referring to what's gone up / down etc in the last valuation round. I am referring to the companies that go bust/ don't make it / cease trading during our period of investment (or get sold at a huge loss). There will always be those companies - it's a part and parcel of VC investing. No VC avoids them all and we won't either. That's just early even mid stage investing.

Agree. You will always have duds - a fair few of them. Just need the few to do really well. That's the model.

There will be a lag on any changes in valuation - it's slow motion from a realisation perspective in the private markets. Much faster when quoted with Cazoo and Ui Path good examples of that, Trustpilot too. It's not just those (Cazoo the worst though by a mile) - it's market wide, with the exception of big winners. Thought machine has trade backers so won't (unlikely to) suffer - it's non consumer as such. That could be a big winner - it's the ones that aren't we should be worried about. I don't know what Revolut is held at NAV wise - if it's the same as the last round then I think it's overvalued. The US is getting smashed at present - well Nasdaq is anyway. Lots of companies overpaid for acquisitions. Cazoo is close to $1 again - I personally don't think Cazoo will be in existence in 2/3 years. I'm also not convinced by Allplants as I have said before. Defintely some winners in our portfolio but in my opinion we have some that are unlikely to succeed as well - without the froth of 2021's market they would never have been funded in all likelihood - but then again that's technology - a few big winners end up prevailing and a lot come to nothing or not much.

I read it differently to you. Overall we will return roughly 20% across the cycle - that's going to be volatile though and we don't really know what's going to happen in future but operationally all ok. They can't predict valuations any better than the Fed or BOE. The market will decide on those. You can't issue a warning on a decrease in NAV as you don't really know it's coming as such. Profit warnings arise when there are known factors likely to lead to a decrease - they can argue that the funding round in 12 months at a lower valuation wasn't known etc. That's not misleading - it's just not prudent and results in share price volatility and large discounts to NAV as people don't believe it.

He notes 20% annual fair value growth across the cycle - if the gross fair value growth achieved during the year of 37% (FY21: 51%) was achieved, then if you take a 3 year cycle you would infer we will be down 28% roughly this year - that statement isn't inferring 20% annually - evenly. They are saying they are building a business which over time should do 20% but it will be volatile - volatile means up and down.

My view - it's probably a lot more sensible to buy at a significant discount to NAV than it is a premium. Investments like this need very specific (almost too good to be true) market conditions to command a premium. If the NAV holds for the next 12-24 months this will be a good buying point. If it comes off circa 30% (NAV) that means there is still a discount of 25-30% at today's prices or about par if NAV decreases 50%. That seems like a reasonable proposition. That will however depend on markets more broadly.

they could never liquidate at a reasonable price - if things got to that point market wide a lot would go down and have very little value. We aren't there. The cash is a little bit of an illusion - a lot of it will be committed - there is always going to be a cash balance given sales / purchases etc. It's not just spare cash that sits there as such.

Potentially - I am concerned that we haven't yet shown a fallback in NAV. I want that to crystallise a little more. If we rushed down to circa £3 I would likely buy in. I don't see that happening at present, barring market wide collapse. I personally think something like Revolut would be lucky to list at $10bn at present, let alone it's last round valuation. That's only one company but as Steph said - they have raised revenue multipliers on part of the portfolio - in this market ?? These are revenue multipliers not p/e. I will watch and wait for the moment. I think the Nasdaq could fall another 20-30% and this will fall in sympathy regardless of whether it should or not. That would take us below £4. I would start to look at a lot of things at that level, particularly profitable, cash flow positive technology companies where valuations had come down to lower p/es. I would also look at buying Grow - I don't however see a quick recovery in this sector. I think we potentially have further falls to deal with, along with a slow / muted recovery. In that mix we have persistently high (not transitory) inflation. That muddies the waters. If I am honest though that update didn't provide me with clarity - just lots of questions around why we are different. There isn't enough transparency on valuations to get away with that.

Very small = circa 0.5% of portfolio coming down from 8% at it's peak.

I have a very small holding in this now which I added very recently - albeit at 10-15% above where we are today. I did sell 90% of what I had a good while ago - not at the top admittedly. Around an 850p average. All I have now is a 'toe in' at present. So rationally you are correct - I have sold most of what I had. Nothing weird about monitoring a stock that potentially has value at some point in the future. I sold as I believed I would be able to buy it more cheaply. I always buy in tranches so will look to increase at some point.

There won't be any clarifications at the AGM - it's impossible to clarify on something that is an unknown. Also there won't be anything there that isn't in the annual report. I personally think they have made an error by not realistically/clearly guiding down for future NAV. Will come as more of a shock and we will get punished twice - now and when it actually happens.

No fund manager / VC / PE would or should say that. They have no way of knowing they will get to 20% at all in a given year / period of time, returns across a 10 year period etc yes. If (and I don't have time to look for the statement) they have said that then it gives me even less confidence than I currently have. It suggests a lack of prudence with respect to a statement - I read it as across the cycle - that means and directs towards falls - basically they aren't here yet given the lag and the way we value but they will come. Personally - I think we have further to fall.

The reason isn't that solid at all to me - basically there are a lot of valuations that will be driven downwards by delayed correlation between public and private markets. They are hoping things come back prior to this happening - it won't - it will likely get worse before it gets better and we will take a massive hit. Nothing in there that makes me feel good about this. Revolut is obviously overvalued - NAV heavily reliant on that. I think you and I are reading a different set of results. NAV is going to get hammered at some point in the future. Prudent - we should recognise upfront. If we anticipated increases in Thought Machine and Aiven, then why not anticipate some of the decreases?