The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Whole analysis misses structure. value is principally linked to nav/share (just as the value of a house does not go down just because you are losing money on the gap between rent and expenses) not increases or decreases in nav share unless one thinks those increases or decreases are a multi year trend.
see below :
Full year 2023 earnings: EPS and revenues miss analyst expectations
Full year 2023 results:
UK£1.59 loss per share (down from UK£2.00 profit in FY 2022).
Net loss: UK£243.4m (down 181% from profit in FY 2022).
Revenue missed analyst estimates by 175%. Earnings per share (EPS) also missed analyst estimates by 126%.
Revenue is forecast to grow 75% p.a. on average during the next 3 years, compared to a 11% growth forecast for the Capital Markets industry in the United Kingdom.
Over the last 3 years on average, earnings per share has fallen by 36% per year but the company’s share price has only fallen by 14% per year, which means it has not declined as severely as earnings.
See Past Performance
Yes sp implies:
1) 60 % of core portfolio will go bankrupt
2) and the rest will not grow in value at all.
3) The seed funds and early stage companies we own will collectively stall and not grow in aggregate.
It is all silly.
Of all the core only Graphcore struggling with progressing to next stage (significant sales with good margins) and the game is not over for Graphcore at all. IN best sub-sector and with a great intellectual property. Can still go down (remember Amstrad) but in with a fighting chance in a lucrative sector. Only one good sales agreement and it will fly.
Absolutely no sign of either. Indeed as they say in presentation
“2024 Continued target of 20% fair value growth through the cycle” -whatever that means and from which start point.
Does “through the cycle” means they expect growth from here to be 20+ to make up for dip.
Anyhow no NAV/share dip over update. Market stabilizing.
That level was last October 2022.
At least the very end stage of the start up to profitable big tech pipeline fully repaired. Seed and early stages never went down. How long it will take to repair the crucial for us late round fund raising stage is anybody’s guess but hopefully months and not years. IPO stage ditto but less critical for our SP than late round private funding.
Looking forward to 7am release of final results. Hopefully some reassurance and forward guidance.
Historically we rise with results but not necessarily on exact day. Often a slight lag.
SO much of our discount is mistrust of our NAV calculations that in these specific circumstances news is always good to have. the lack of news increases anxiety and decreases SP.
Our preliminary results were reassuring but did not lift our SP. Maybe finals will.
Hopefully some reassuring detail on valuations.
Graphcore and Revolut the only 2 core that concern me in the sense that the valuation on our books might not be low enough for current market conditions.
Revolut seems to be growing nicely in a competitive market and states they have achieved modest profitability so no need to raise money. Is it worth the circa 15bn on our books? Maybe maybe not. Without a recent funding round just a guess either way.
Graphcore even harder to value. Basically the circa 2bn valuation implied on our books is for intellectual property (and further development) and a well developed team to service sales if they ever come in volume. In the fastest growing subsector of a fast growing sector and Europe’s only serious contestant. Anybody could recognize the strategic value and jump in based on the intellectual property and not worry too much about sales for now. Whoever dominates AI will have a leg up in the whole emerging economy. It is a big boys game and he country and company that wins will make a lot of money and have a lot of strategic muscle. In such a big game a few billion on development costs small change for some.
Oil at 70 in spite of hot war, Saudi cuts and sanctions means it is coming down fast. Even faster if some sort of Iranian reconciliation and ceasefire in Ukraine. We are about to enter a period of low priced oil. Goes in cycles. High price more exploration and shale production. As low as 45 for sure but there is always overshoot on the swings.
Just as energy started this inflationary cycle it will help finish it by lowering forward expectations and thus wage demands. Wages only paying catch up to inflation and coming down will lag for that reason but they will come down.
HIgh interest rates not stopping some bits of tech from reaching record valuations. It was always overweighted as a reason for our catastrophic drop from 11.82 to 2.4. Much of the dip below 2/3rds NAV/share sentiment not backed up by evidence.
We wil not get 11.82 or beyond until the late round funding market for unlisted tech repaired and volumes back. Be nice if IPO market was repaired as well but not as essential to get back our previous SP. Only a matter of time I think. Sentiment that is keeping us down can turn on a dime.
We went down fast on this dip and are late to start recovery.
Only Graphcore of our core portfoli may not come back to previous valuations . The rest will in time rise with the market. All doing well on sales growth and projected to do even better in 2023-2024. .
Even Graphcore may surprise on the upside. Just takes one good sales agreement. Sector it is in booming at record valuations but Graphcore having trouble achieving sales on a great product. . Tough competition though. Brexit has hurt the likes of Graphcore. No longer an EU champion vs USA but a big AI US champion vs tiny UK. We are getting crushed by nationalism and protected markets. Not the world to go it alone trade group wise.
IPO was always going to be the last part to recover of the tech start up to listed profitable player pipeline. Early angel, seed and even round a’s never seemed to dip. SO long term I guesss move to differnet forces than short term interst rates. BIg listed tech now fully recoverd. SO other extreme end of pileline repaired. PUre play AI firms now above levels of 2021 peak. SO wonder what our portfolio plays on AI are really worth now. Might be up. MOney flowing into sector.
VC investors expect a slew of high-quality offerings when the IPO window opens back up in Europe.
Just nine VC-backed companies went public in Europe in Q1, according to PitchBook data. But “speakers at the SuperVenture conference in Berlin said a significant backlog of listings could hit the market in a rush when conditions improve. When that rebound might begin remains unknown.”
The pitchbook analysis is important. Shows that the funding round climate is not in free-fall as our SP assumes. Quite the opposite it may have stopped falling completely and is starting to recover.
Never was evidence that funding round climate was in free-fall. Just a Mexicans standoff between tech start ups who do not want to go to market if valuations are down (thus cut spending and extended runway lengths with what they had) and funds not willing to pay valuations they paid in 2021. SO volumes dropped through the floor. Did not mean money not there but only disagreement about the price to be paid.
Looks like those who waited will be rewarded as market returns to normal. Will not be peak 2021 multiples and volumes but will be in line with 2012 to 2020 pre covid norms which for us means a much higher SP than now.
Thanks
Good evidence that 3 quarter falls in late stage tech start ups has stabilized or reversed itself. No justification for our SP which assumes it will keep falling.
SP will recover slowly and jump suddenly if one or two of our core portfolio go for a funding round and get an increased valuation to what is on our books. Graphcore the obvious candidate to go for a funding round in the improved AI environment we now have.
Tech vc private pipeline getting repaired all along it’s length.
https://pitchbook.com/items/files?eu=yQk2%2BlrYNIMauZa%2FSzm5A%2BrDx4RdHOKwIWgi8zyQMN%2B2JkAjRs2E%2Bs9rzu6N%2Fb6l1mrnqGUz6NZPoszdpYeXeDBptvaXS4z9cnQpG67U6Ko%2B7SRnsbCUz2ko6MquvkQ4
Back to levels of June 2021 the beginning of the covid surge. And nearly 40% above the October 2022 trough. The sector just wants to go up -GROW excepted for now. This is not the dot com boom and bust when good ideas with no sales were funded indiscriminately. Our dip is an overreaction to news that is bad but nowhere near as bad as our dip implies it is.