Member Info for steph

Page 23. My interpretation of “we will not be needing to fund the following companies…”

I missed that bit about share buy backs. no wonder the strong rise today.

be nice to do enough to offset the dilution of the 50m fundraising that was done far below nav/share

No surprises -except maybe the bit that 85% of portfolio has 18 month or longer runways. That is a good figure, especially in this market.

They listed the companies that don’t need funding (I presume because they have some modest profit). New approach.

Https://www.theguardian.com/business/article/2024/jun/10/labour-election-victory-markets-jp-morgan-city?CMP=Share_iOSApp_Other

Labour gets a big majority on anything above 40% of vote considering how fragmented the other parties support is now.

I expect the Tory polling to decline as Kim Cambell’s in 1993 Canada election which had surisingly similar party dynamics.

Canadian Conservatives were on about 35% when they called the election -equal to liberals. But in a 2 month lackluster campaign ended up with 16% and only 2 seats and a Liberal Majority. Mulroney who did the damage and then resigned leaving Kim to pick up the pieces was a Boris like figure. “Baloney Mulroney”

UK Tories start to get less than 10 seat under 20% of the national vote. Will not be completely wiped out even with only 15% as a few seats have impregnable majorities.

Https://citywire.com/investment-trust-insider/news/david-stevenson-the-future-s-bright-for-private-equity/a2442047

Https://www.theguardian.com/business/article/2024/jun/03/european-and-canadian-central-banks-expected-to-cut-interest-rates-this-week?CMP=Share_iOSApp_Other

Https://pitchbook.com/items/files?eu=yQk2%2BlrYNIMauZa%2FSzm5A%2BrDx4RdHOKwIWgi8zyQMN9%2FVuNJKOBlRG9WmH%2BTxR4%2Bqej3sfYDp8EmkNfVinFw9HjsK0nfJaglVkTOVXJMCSRwEUxIA%2BmOHLLDAZEBhCUDzoPD9g%2Bi%2BVoW%2BVBwKdTzBg%3D%3D

“Conditions have improved, so why is PE still waiting?

In many ways, the current macro environment should be quite supportive of PE.

Real economic growth has continued to be robust while input prices have moderated, which has created a positive backdrop for portfolio companies' topline growth and profit margins.

Labor market turnover and wage growth have slowed without a pickup in layoffs, and leveraged finance investors are offering the most favorable lending terms with respect to credit spreads in the post-GFC period.

Yet, the figurative dam holding back pent-up PE buyout deal and exit activity has not broken despite many in the industry trying to speak it into existence. The continued lack of activity is putting many components of the traditional PE buyout investment cycle under pressure.”

We still need interest rate reductions it seems.

Membership has been cursed for us but let’s hope this time round helpful.

No theoretical reason might hurt. Should mean some additional programmed buys to balance out FTSE 250 trackers. Never been sign of that.

I think this drift up has a bit more to run. 2/3rds NAV/share for our SP about right in current market conditions. SP =Nav/share as son as NAv/share starts rising again -maybe as soon as October update. Certainly by May 2025 year end update.

On year end results June 12th we should have some positive forward guidance and with that upgrades in broker 12 month targets.

I’ve pencilled in 20% per annum NAV/share upgrades going forward so June 2025 806, June 2026 984 (back to our June 2022 level), June 2027 1207 and June 2028. 1468.

Soon as market accepts NAV/share going up steady and at this rate we wil trade at NAV/share or slightly higher so acceleration of SP wil outpace NAV/share upgrades.

Will be a great 4 years (following a 4 year dip in achieving NAV/share of 984). Portfolio has grown organically into that NAV/share even with little improvement in multiples. Like a coiled spring we might jump if multiples recover somewhat.

Markets like stability and Labour is now the party of economic stability. 1/100 chance of the Tories making it back.

All signs point to a pretty exciting 3 years for our SP. Maybe a quick recovery from the oversold position we have now and towards something more sensible -even if not optimistic.

When GROW went public in 2016 and then joined the FTSE what should have happened in theory was that retail investors and funds who do not invest directly in unlisted tech would pay above the last round prices and the SP would trade at a consistent premium to NAV/share as the rate of growth (20% or so) would be unavailable elsewhere.

What we got was the above premium half the time and a continued dependency on the same type of funds that can and do invest directly in many of the unlisted assets GROW owns. Those funds will never pay much of a premium to NAV/share as they can buy the underlying assets directly -although they would need to wait for the next funding round to do so and don’t tend to buy into the seed funds GROW use for round A info.

I suspect once we recover the market will accept that the discount to NAV we had was overdone and will not repeat the discount at that level next crisis. A dip in NAV/share from circa 940 to circa 660 was plenty enough for a fast growing portfolio with few if any actual bankruptcies to average in. There was no need at any point for a discount above 30% for our SP.

From here I think we have a lot of hidden value that will drive very fast NAV/share growth over the next 3 years. I don’t see any problems reaching and exceeding our previous high of September 2021. We avoided frothy valuations on the whole an have been growing the portfolio organically ever since September 2021.

Good luck all

Long run I expect this to be a better store of value than it has been for last 2.5 years with a favorable relationship between volatility and growth. IN other words the least possible volatility on the maximum growth potential.

We are not there yet but I think in time with market familiarity with our retail wrapper and history on our side we will emerge as a relatively safe way to take a punt on a fast growing segment of the economy. Some volatility of late not structural. Just difficulty in understanding a new asset class in times of stress. First time round over correction down.

Risk =rise

Nice risk and if you click on 3 month charts looks fantastic.

However when you click on 3 year chart it looks very modest indeed against what is needed to get back to previous sp.

For my money I think we are going back to previous sp. Whatever the permanently lower valuation multiples (Revenue to nav of portfolio companies) we might have are outweighed by fast organic growth of GROW portfolio entities (60% plus).

When is the million dollar question though. I have pencilled in 2.5 years. So a 5 year dip peak to peak. My head says 2.5 years but my gut says sooner. Anyhow good luck all.

Agreed that interest rates are the largest driver of our sp through the mechanism of no risk rate of return changes and the subsequent lowering of net present value of revenue far into the future. HIgh P/P multiples of growth stock demonstrate that there is a shortage of investable projects though and sooner or later our sector will get the inflow.

Yes our investment class is new (retail wrapper around unlisted tech) and having birthing pains an d subsequent volatility. Peak to trough NAV/share dipped 30% (pretty normal market dip) but our SP dipped 86% peak to trough. That differential is unlikely to happen next time as marekt get used to our asset class. Unfamiliarity and our black box information flows hurt us as did FSA regulation that treated us as a closed fund without a instantly correcting SP on market jitters.

We have had 2.5 lousy years and now I think we are at the beginning of 2.5 great years where our SP will catch our previoius high again and hold it.

OUr sector is naturally growing. BIg tech is not expanding as a % of the whole tech pipeline due to natural tendency of knowledge economy ideas to be birthed in smaller more agile entities. For innovation there are disadvantages of size (regulatory attention and bureaucracy). ALso small innovative companies have relationships to Universities so get a lot of free knowledge transfer that big companies do not. Public subsidy of knowledge creation.

Our core portfolio is in spite of the downturn in healthier shape than historically. We have always had a % failure rate and at the moment that is unusually low. So once confidence returns we should shoot up pretty quick.

Https://citywire.com/investment-trust-insider/news/david-stevenson-the-future-s-bright-for-private-equity/a2442047

Great long term hold this to be sure.

Shorter term I expect not much will happen until final results on the 12th of June and then we should get broker upgrades. A couple of broker guidance currently around 3.40 which is silly given NAV/share is stabilizing and should go up over the next 12 months.

I don’t expect us to get beyond 4 quid until October half yearly results. Any solid NAV/share increase in October will create a pretty swift drift up close to the new NAV/share. Beyond that we should move up aligned with NAV/share increases which in turn go up in line with (at a discount) sales increases. Maybe a few upside surprises where some of portfolio cash out at higher amounts than on our books or are credibly worth more via a price discovery funding round.

Https://files.pitchbook.com/website/files/pdf/Q2_2024_PitchBook_Analyst_Note_Private_Capitals_Path_to_20_Trillion.pdf

Https://www.theaic.co.uk/aic/news/industry-news/david-stevenson-the-futures-bright-for-private-equity

Sometimes the optimists are right.

For my money I firmly believe in current market conditions and how we have our portfolio valued trading at 2/3rds nav/share is about right until we log some NAV/share increases (profit) maybe as soon as October 2024. Then we shall catch up to a nav/share that itself is moving upwards. By next year moving up pretty fast due to organic sales growth (60% plus) of portfolio companies.

Thanks, good links