Member Info for steph

https://www.bloomberg.com/news/articles/2023-02-01/powell-holds-fire-on-markets-breaking-loose-from-fed-control

US rate decision is certainly the beginning of the end of these rate rises we all agree have devastated our GROW SP Matters not if we think the dip evidence based or an overreaction to evidence. the direction has been the same.

Conversely coming out of rapid rate rises and possible late this year or early the next decreases again we all agree this will create conditions for a rising GROW SP.

I expect when we get the year end update in late April it will show no need for any further haircuts on last round implied valuations and will show some earned organic growth leading to a credible increase in NAV. GROW predicted year to year nav wil increase making up for the half yearly trim.

I think we agree that market conditions are neutral if interest rates not rising. SAGE believes there is a lag in the unlisted tech sector to the publicly traded market dip we have had. Even if true this lag disappears if the listed tech sector recovers in the meantime. US tech starting to come off lows already.

Maybe 8.37 NAV/share fully priced in with our NAV deflators or maybe not but with SP at 42% of Nav an awful lot of bad news priced in that may never materialize.

For my money I think the next 3 months will be quite good and the rest of the year even better. Hate the volatility. Love the share and sector. Too bad I have zero to invest further.

My thesis is just that the GROW dip is overdone. Bond yields (risk free return) at the moment are about 3.5 regardless of whether 1, 10 or 30 years -which is interesting but hardly historically high in any way shape or form.

YEs of course stocks that pay a dividend and have net profit have floor even when the risk free returns are higher. The difference is the stock will permanently on average earn the return and the risk free return is only as long as you buy it for.

As you say sage when the market price for solid dividend earning stock takes a silly dip buy the yield. Maybe as you say this drains liquidity out of the non dividend paying sector and one gets a leveraged dip that will reverse itself soon enough when the yields for the dividend paying shares normalizes.

A even more extreme interest rate event that one can study was Mexico which went form bank rates of about 18% in 1993 to peak at 59.5% in 1995 and tehn only slowly bakc down under 20% in 2000.

The stock market crashed under the weight of 59% interest rates but not as much as you might expect. It went from 150 to 50. Less then the dip we have had with GROW. the mexican market recovered between 1995 and 2000 even though interest rates remained above 20% to get back up to 150.

I was there when it happened and someone I know put their FOrd redundancy payment into a risk free account and got 60% thinking it would last forever and spent accordingly.

Interest rates of 4.5% nor interest rate rises of 4% from what the market got used to have historically had little impact on shares. Nothing like what is being assumed today for our sector.

Go back to the Jan 85 to Mar 87 period when bank rates went dramatically over 10%. FTSE went from 1000 to 2000 in same period.

Same for July 88 to September 91. BOE rates went over 10% and spectacularly so but FTSE went up from 1,300 to 2,600.

Interest rates (even over 10% and periods that last for years) do not drain so much liquidity out of markets as is being attributed to this dip. For us a 3 or 4% change in the risk free capital return should not create such pessimism on values for tech start ups and unlisted firms. Not saying we should be immune to changes in the risk free returns but these changes have been modest by historical standards and nothing like as much to cause the 42% of NAV SP when the NAV is not even based on last round sales but something less than that.

I fear our retail structure means we go with the trend to extremes that make no sense. Lack of information on how NAV calculated component by component make this share very easy to panic.

For my money I think this dip is overdone and I am invested accordingly. Scary rollercoaster ride though.

Sp no improvement over 5 years.

That’s silly. There has been circa a billion in cash realizations recycled upstream in the companies of the future. Unless one assumes those investments are worse than holding cash we are sitting on unrecognized value.

We have gone from NAV/share of 3.52 September 30 2016 to 8.37 September 30 2022.

Yet our SP has only gone from 340 to 357 in the same September 2016 to September 2022 period. Worse if you compare the reporting date to reporting date.

That is daft. Nothing has happened to the market to warranted the discount to NAV we have. Ignoring 2021 as a covid outliner the rest of the years were pricing our portfolio accurately.

We have had 15 months of SP decline. Now for the 15 months of recovery.

https://www.uktech.news/growth-strategy/exit-strategy/uk-tech-ipo-2023-20230130

Of course be better to get an audited confirmation but CEO can’t make false statements without getting sued.

hard to know what would be the GROW SP if we had been in an environment of normal 4% BOE interest rates the whole time since launch as a retail trust in 2016. I suspect it would be a modest premium to NAV/share given the fast growth on average in NAV and the difficulty of retail investors to get that growth in any other way.

Jitters for sure getting up to 4% BOE but it is not really an abnormal rate. Been around 4% for most of the last 300 years.

The rise in interest rates is affecting NAV calculations in ways you describe. I really think these downgrades are a bit overdone. The medium size tech GROW specialize in are only on average a few years away from turning a net profit. One important one is profitable already. SO how many years forward does one need to discount the current interest rate of risk free returns compared to the 0 to 1% we have gotten used to?

Lets say the GROW portfolio can on average reach net profitability in 5 years and grow that profitability to give them an excellent P/E at current valuations in 8 years of say 10. Even in the worst market (much worse than now) a P/E of 10 is a solid floor for tech with 30 or more normal even at 4% bank rates.

That 8 years at 1% base rates is equivalent to 8.5 years at 4%. It is only if as you say many or most of GROW’s portfolio don’t make (and the winners are not big enough to compensate) it that the current SP is justified.

Down to the quality of the horses in the stable. Cazoo crippled at the gate. The rest pretty good and some (deep tech for me) spectacular.

https://www.telegraph.co.uk/business/2023/01/29/bank-england-has-new-headache-falling-inflation/

High interest rates seems to be the number one driver of suppressing our sp from achieving or exceeding recent highs.

When this passes not only will be trade at a small premium to NAV as on average we have normally done since our own float but the nav calculations themselves will be able to reprice upwards on top of any organic growth. Currently there is a discount to last round (up to 80%) on fears that a current round (if ever needed) would not be the same under current high interest induced market conditions.
5 years have passed with no increase in our SP yet the companies we have have grown exponentially. Total sales of our portfolio companies in aggregate per GROW share has gone way up.

ALl we need is to get back to the market conditions of 3 to 5 years ago to have a big sp rise. We don’t need to get back to the 2021-22 bubble conditions at all.

Unnoticed is the pivot from money supply expanding by regulatory permission of private banks to loan more out than deposits received (benefitting banks SP’s) and towards government getting a cut by directly expanding the money supply through their central banks (benefiting government books if bond coupon not collected by Central banks as has been happening). You could call it “preference bonds”.

Everybody wants that gravy train to restart and it has been very inconvenient to have inflation again. All this tough talk on interest rates I think is for show.

The main thing is that grow CFO said in a live investors broadcast in response to a question on valuations that the loan due diligence was significantly more intrusive than the “regular” auditors due diligence on valuations methodology and results.

Their money their rules -even if over the top.

IN spite of preference shares, stock picking (enabled by 1000 plus of seed funded companies) and leading )rather than following rounds and thus getting our pick of timing and opportunities) we have fallen much more than the sector. Sector in ruder health than supposed. 2021 bubble was not years building. It was a relatively modest post covid blip now corrected by 2022 and we are back to pre covid valuations, trends and cash flows into the sector. Within the sector only firms who exited or fund raised in 2021 got “frothy” valuations. That was less than a third.

I think that is mainly our retail front end means when money wants to get out of the sector they have limited options and because we are liquid we are the “tall poppy” that gets cut.

As money for us flooded out too fast it will flood in just as fast. Just a matter of when. For my money I think the bounce back will be sooner rather than later. First solid signs of interest rates peaking , flat lining and with a forward trajectory of down a bit and the sector and ourselves will roar.

Central banks talking tougher than they will act. Part of the show they must go through. Commodity based stimulus to inflation over and we are in the tail stimulus of wage catch up.

No way wages will drive inflation over any significant length of time. Workers unable to push for this and few wage settlements enough even to tread water in terms of real buying power. IN US low wage workers at the lowest wages in real terms for decades, Low UK unemployment is drop outs of the workforce driven not a overheated wage market as Hunt admitted with his grey power speech.

BOE real keen to get interest rates down a bit as soon as safe to do so as more risks of financial problems now of 4.5% BOE rate than being too dovish on rate. Government borrowing costs (and thus sovereign default risk) jump when BOE rate high. ECB keen to keep printing money (sovereign default risk of Southern EU to worry about) but need US and BOE to stop raising interest rates to keep going. BOJ in it’s own universe but keen to keep printing.

I think the focus was lack of liquidity to make payments if no exits and no easy way of selling assets. Needed to see whole ecosystem.

We have a lot of downside protection due to preference shares. We don’t dip in value with the market for private tech.

There were some quite severe haircuts form last round valuations. One was 80%, maybe that was revolut they did not say.

All traded shares are at current values in nav. Nothing to write down there. Damage done.

Yes there have been a decrease in nav for anything apples to apples but quick growth does help as do our last round trims. Is our current nav about right for market conditions? 2 independent valuers thought so who have seem more detail than us. Grow said that the loan due diligence was particularly challenging more so than the independent auditors valuations.

For my money nav at moment accurate for market conditions so unless there is a further deterioration (inflation not coming down as expected or war in Ukraine spilling over the borders) than this will go up from here and faster than most expect.

Good luck all.

clearly the market at the moment is aligned with your pessimistic view on nav, analysts though predict nav growth from here even in this market.

have management trimmed last round implied valuations enough for market conditions?

been 2 independent verifications. kpmg and who did the loan facility, plus fast grow of companies themselves means they do catch up with a nav that was conducted in better times.

for my money i think the nav solid but clearly the market thinks not. day-traders can’t depress the sp over this period. arbitrage opportunity i think

In aim we never really attracted day traders. Margins too wide and they just left us alone. We moved logically with the market and share specific news.

Now we do horrific. Real value a bit obscure so easy to start momentum downwards. Assumption there is something solid behind a dip when there is not but they can panic other sellers and get leverage.

Our current big gap between sp and broker guidance and NAV/share is lasting a long time so some strategic underinvestment going on as well. I expect that to lift this year at some point and we will be back close to NAV/share.

Ridiculous. At some point this will turn decisively towards NAV/share and broker guidance. What the trigger will be for the turn hard to say. I think an acceptance that US inflation waining (all central banks need to follow somewhat USA) is enough. Maybe some company specific updates on exits or growing NAV/share.

USA ‘tight’ labour market is a fiction. It is tight only because the minimum wage is at a 40 year low inflation adjusted so many workers at the bottom falling out of the workforce and retiring early or becoming house wives/husbands. What the tight market is signaling is minimum wage needs to rise not that the “hot” labour market needs to be cooled off by slowing the economy piling more misery on already low wage workers. .

Idiots in USA causing unnecessary problems world wide.

https://www.cnbc.com/2023/01/25/inflation-is-cooling-but-high-prices-will-stick-around.html

I imagine just money out that will come back soon. Maybe tomorrow.

Hate this volatility .

Time will tell. A lack of transparency on performance of each core portfolio is hurting us. No doubt some bad news on some but I’d rather make my own judgment on that than have these unhelpful bundled statistics. A start up just starting to make sales can have a 1000% increase in sales and still be at a poor sales to NAV ratio. Need to see the detail I’m afraid. Market thinks the same.

For my money I am betting that the lack of transparency is hiding success rather than hiding failure as the market assumes. Arbitrage opportunity. I take the managers at their word that they would gladly buy their own stock if they had a bit more cash.

Whole business model of a retail front end to unlisted shares becomes unstable in bad times as the market does not have the information to reprice accurately and for my money short term over reacts to theoretical downside possibilities.

IN a regular unlisted market investors with little choice take a 5 year perspective. They simply have no easy way of getting their money out (or in) in the short run. IN ours portfolio weighting change can be done in microseconds, indeed can be in an out on each dip and surge. Combine that with a lack of transparency and one has excess volatility.

Good luck all.

Yes GROW needs to prove it’s valuations by a profitable disposal or two at or above the NAV valuation.

Must say surprised we are below half of a trimmed and conservative NAV/share. Can’t see the bad news head that justifies that discount. Indeed I think 2023 will be generally a bit of a bounce back as interest rate rises stop and towards the end of the year may start to reverse. Plus GROW portfolio growing on average sales at 70% per annum so some tigers in the tank. They did not say how that was calculated. Trust it was a weighted average. Hope not a big sales increase on one firm from a low base distorted the average. Imagine not as they would be liable for any misrepresentation.