Member Info for sageoflondon

I did hold some Polar Capital - i.e. the actual fund manager itself. Given their heavy bias to ESG and Technology a lot of their performance fees and hence profit are dependent on performance of these markets. Served me very well, but sold out at around £8.50. Currently just below £7. I would consider buying back in again at £6/£6.50. Fund managers are a very leveraged play on the performance of a particular market / sector, but when they go up, they go up.

What sort of proportion do you have in this? i.e. percentage of portfolio?

Interesting Bloomberg article that states 40% of the Nasdaq index constituents have fallen by 50% from their one year highs. Was written in January, but very relevant here. We are around 30% off our high here at present. So not down by as much, but still down by a significant amount. Could have a bit further to fall yet. Likely to see some support around the £8 mark, depends on sentiment ultimately. I am pleased I moved this from 8% of my portfolio to a little below 5%. I sold out of everything else Tech related (except Grow) late 2021.

My focus has been value for the last 12 months or so. Picked up Beazley at around £3.30 a share post their rights issue, along with some Petrofac at £1.15. I think there has been significant underinvestment in oil / gas capacity and the SFO issue is now behind PFC. Surprised I could pick up at rights price. Beazley will return to £5 barring any enormous miscalculation in exposure or natural / man made disaster, quality company. Overall portfolio yielding around 3.5% which gives me a little reinvestment cashflow. About 14% cash in my portfolio at present.

To an extent profits are irrelevant to us - the profitability of our individual companies that is. We shouldn't be around long enough to find out unless there is certainty we have a winner. The objective of GROW is to sell the investments for more than they purchased them for, or ultimately at their peak valuation. We missed the boat on Ui Path and Cazoo, potentially Trustpilot (although given the size of our holding this would have been difficult to exit at the peak with lock-in as well). I don't believe we will have news that will punch us higher. I think we will be flat at best, potentially down as I have said before. Holding for the next 10 years (might adjust weighting slightly) so this doesn't concern me, but not expecting any real return from this in 2022. This is probably around 5.5-6% of my portfolio now, down from a peak of 8%. Part of that is due to a sale and part due to the decline from £12.

It's easy to have a higher GP margin in a niche. If something is profitable then more competitors will come in and join the party reducing returns. There is no guarantee that a 'niche' company with a high profit margin will be able to cover it's costs - i.e. ever really reach scale to cover overheads below the GP line. I would imagine that 'allplants' have a very high GP margin, but I think it's precisely that - a niche business that will struggle to really scale and become the next Unicorn given the amount of other traditional and new companies doing something similar. Also a serious lack of barriers to entry - Frozen vegan ready meals - it's hardly revolutionary. Cazoo peaked at just under $14, it's at $4.77 today, that's a fall of 66% - again I don't think this will ever really justify it's peak valuation. Ui Path has lost around 50% of its peak valuation. People were willing to pay top dollar, but I think there will be a lot more care and conservatism on subsequent funding rounds. Revolut at $33bn, it's revenues weren't even $500 mn. That's a multiple of at least 66 times sales. Anyway you look at this the valuation is crazy, it certainly isn't a low multiple of sales. It's also a highly regulated sector which comes with significant cost barriers. I am not sure that Revolut would be able to raise funds at a similar valuation today. A high GP in a niche business needs to be a given or it stands no chance. Saying that Amazon had a really low GP and still does in its retail arm, yet it is incredibly dominant and successful and by no means niche! I would like to have a better feel for how many 'low multiple' of sales investments we have and the proportion of the portfolio these comprise. Certainly a lot of the larger ones don't look to be at a low multiple of sales.....?

Gross profit is only suggestive of long term profit potential in most start-ups. It's the other costs that need to be covered to make an overall profit as the company reaches a certain level of scale. Gross profit is normally possible from day one. It's the sustainable net profits that we want. A significant proportion of our portfolio will be burning cash rather than generating cash. It is what it is. This is a growth operation investing in high growth technology - i.e. most is not yet profitable. I don't really think the comment re Gross Profit margin adds much as such. If they weren't making a gross profit then they shouldn't be in the portfolio!

You are correct that a lot of traded or listed tech is valued on high earnings multiples or PE. A lot of our companies don't yet have earnings - i.e. they aren't actually making any profit, so are instead valued at a multiple of sales - sales aren't profit or earnings. These two measures are very different. In any pullback that lack of current profitability will likely amplify any losses. There are plenty of start-ups that won't make it to profitability at all as maturing business models expose weaknesses. Easy money has meant a lot more have been given the opportunity to see if they can achieve long term success / profitability. Regardless of rates going up, a lot of those won't make it. That's the model. In reality this is much riskier than proven concept, profitable listed technology - I don't include Tesla in that as it doesn't have a significant record of sustainable profitability like Google, Amazon, Apple etc. Those companies are now throwing off free cashflow, albeit some are more capital intensive than others on an ongoing basis. Revolut as an example has to prove it can be profitable. It's nowhere close to justifying it's last round valuation at present. Grow forms the component of my portfolio where I want a bit of risk / technology play, on the understanding is that my returns will range from worryingly negative to fantastically positive. Just my take.

There is no way private tech valuations will de-couple from any wider technology pullback. Maybe from a specific stock related pullback, e.g. if Facebook user numbers went into reverse. Any big pullback in the Nasdaq will obviously have a significant impact on later stage / developing technology. The way a lot of earlier stage companies get taken out is heavily dependent on the valuation of the acquirer. This has provided significant firepower to technology valuations. I have said before that we are likely to see years of negative NAV, followed by above average growth. It's never going to go up in a straight line. Nothing to worry about in my view, but my view is I could see NAV performance anywhere between -30% and plus 20% for 2022. I have no idea which of those.

I'm not thinking of sales declining in the population of privately owned companies, but if valuations pull back multiples of sales used for the valuation may well be re-evaluated. The wider market and valuations will impact this.

there is a good chance of NAV will be flat or even slightly down when we next report. It's a distinct possibility.

All really positive in terms of seed companies, but these currently make up a small proportion of our NAV. It looks like the negative performance today and yesterday is being driven by our listed holdings. Ui Path down again and considerably off it's peak valuation. Same re Cazoo. Both are currently down around 7% I believe. This is having a significant negative impact on us. These companies were floated at silly prices - Ui Path is considerably lower than it's IPO price at present. Personally I think it has further down to go. I could however be wrong. I am still a supporter of Grow but have reduced a little. Will look at my weighting again when some of the quoted holdings are disposed of.

Interesting that Softbank - effectively a large combination of lots of tech investments trades at around a 50% discount to NAV - what is termed in the FT as a 'conglomerate discount'. A lot of that portfolio has also plummeted in value.

A good solid set of results, backing up what has been said previously, with a little more on top as a positive. I hope not, but I believe this company is a prime target for a bidder. I think it's worth at least £5 today. A bidder might be willing to to pay £6/£7. I hope not though as I would like to continue to own. What's not to like. Great potential for dividend growth as well. Feel very fortunate to have bought this in the low £2's in 2020.

Audited versus Unaudited shouldn't be very different if the company Finance / Valuations department are robust - which they should be. Unless there is a disagreement over methodology, calculation error or a big change / disagreement in market factors they should be very closely aligned. If the unaudited valuations were pushing the boundary of prudence then they may be brought back into line. In all honesty they should understand how the auditors will value things so should be able to replicate methodology - it's just a check to ensure all are playing by the rules in reality. A significant discrepancy between the two would call into question the quality of information originally provided and would not reflect well on anyone - they will be similar if not identical I would imagine.

I think it has a lot to do with the make up of the portfolio at present and the fact valuations look stretched. I think the last thing management should be doing is raising more capital (I don't believe they are doing this). My view would be offload some listed holdings and have some cash on the sidelines ready when something decent comes along. I think some shareholders will be reducing their holdings given where we likely are in the cycle. Something like this could easily see 20/30% down if markets turn down even 10% or so. Always going to be volatile in both directions - an awful lot of the valuation piece is down to how much a business is perceived to be worth - especially where there is no reliable earnings pattern on which to value the business.

£9.50

I don't think the results in November are going to move the share price significantly. I think we will stay in this range for a good while. The big post Covid gains are a thing of the past. Only solid NAV increases are going to move this, and when people believe they are big enough to stick and not based on froth. I think the broader market is also sceptical of ever increasing values based on ever increasing multiples of sales, rather than multiples of actual earnings. Regardless of interest rates, with inflation running hot, investors are looking for tangible earnings at present - i.e. cash flow positive profitable companies. Don't take this as me selling out, my holding here remains at the same level. I have however increased my holdings of more value orientated stocks and certain bonds (including some floating rate infrastructure). I haven't done this to outrun inflation or for an income, rather to try and keep pace and also to provide a little protection in the event of a large pullback. Something like Grow is going to pullback much more than something like Unilever or boring old unpopular IMB in the event of some market turmoil. This stock has a really high beta and returns will be very volatile. Many investors will also look for exposure via the VCT route as it has huge tax advantages. Still a long term holding for me, I just think that anyone looking for fireworks this year (or even next) will be disappointed. I would prefer we sold down some of our listed holdings and held cash until we were happy we had found some excellent opportunities. That doesn't include Frozen Vegan ready meals - since when has that been technology! COOK have done Frozen ready meals, including some vegan options, for many years. Drones yes!!

Cazoo is a huge concern. I want out of that asap. The valuation is nuts. No confidence in that one whatsoever. Sooner or later it will come back down to earth and it won't be pretty.

I'm not convinced the share price would have flown up on yesterday's news. An excellent set of results but, to an extent, already in the share price in my view. We are at a premium to NAV in a market where tech valuations are at all time highs, this was by in large publicly available information. Given where are are in the valuations cycle I think significant upwards share price movement will only occur on subsequent increases in NAV - i.e. we will track NAV broadly, no significant premium - likely range of -10% (i.e. discount to NAV if things even look a little shaky) up to a maximum of a 20% premium (about where we are now). As NAV increases get baked into the price depending on prevailing market conditions we will move about a bit. I think it's somewhat over optimistic to expect more than a 20% premium over NAV. If the NAV moves up another 30% or so next year I will re-assess my view! We have had some incredible increases after the Covid lows - that's to be expected in reality. I think the jury is very much out on whether we can achieve sustainable increases at these levels. I think we will remain in a £9 to £11 range up until the next NAV update barring any big market moves.