Member Info for steph

Sounds sensible. I’ve got 20% pencilled in for GROW for 3 years and perhaps slowing a bit after that.

I assume GROW’s underlying portfolio is growing faster than 20% pa ( reported as circa 45% sales increases across core portfolio year on year) which should sooner or later result in NAV upgrades and trust level “earnings” of 20% or better.

I think we dipped yesterday and today on general market, gotten a bit ahead of our curve and Jeffries switching to hold. A lot worse things can happen than an upgrade to 12.00 target and a switch to hold when we were 11.80. We are overrunning all broker guidance and with good reason.

An analyst in July 4 predicted our revenue to collapse in 2022 to 113m nearly half of our 207m for 21. That is clearly silly with Edison recently noting we already have 65m in the bag form only one core holding. So roll on results.

thanks

I took out a small punt on Accsso and will research. Why did it drop from 3000 to 200 between October 2018 and April 2020. Even pre covid it dipped from 3000 to 350.

For GROW my 3 year sp prediction pencilled into my spread sheet is 21.00

THat is a tad under 20% per annum growth from here based on an assumption of proportional 20% NAV/share growth from our existing. 745 trialing NAV. It assumes no further repricing nor any change in NAV calculation methodology.

20% per annum is the highest “natural” growth rate in my spread sheet in my portfolio. The fact that the underlying portfolio to grow is growing at 45% in sales/earnings per annum means the 20% is a credible figure if that NAV/share growth rate can be maintained. It may even turn out to be a tad conservative. If the underlying portfolio is so well chosen and in such a great sector that it can maintain an average of 45% sales growth I can’t see why NAV/share can not be higher than 20% per annum as capital recognizes the value of these fast growing private companies and fundraising rounds are priced accordingly.

I penciled in 550 for September 2024 so I'm putting 3,000 (capped using a guaranteed stop loss) at risk to get a 5,000 profit.

I can't take out more GROW in IG platform with guaranteed stop losses. SO a slight risk management benefit to the position in K3 rather than more GROW.

Don't mind taking known quantities of risk but I don't want to risk losing all my money nor ever have a margin call I can't meet and be forced to sell in the middle of a sharp crash. Been there, it was awful and don't ever want to go there again.

Read your blog and seems quite justified in short run.

Year on year though GROW the better candidate.

I took out a 10,000 pound position in K3 on you recommendation. I have a stop loss at 90 points below current sp "just" betting 3,000 for now. Blind trust for the moment. I'll research later.

roll on FTSE 100 for GROW.

What SP for K3 do you have penciled in for September r 2024?

amazing. We are a whole year ahead of my spread sheet prediction for what the SP will be by when.

The sentiment impact of going into the FTSE 250 is a bigger influence than I expected. Drew all sorts of attention to us and allowed a pivot to retail prices rather than the institutional investor only prices we were on. I thought the influence would be quite minor -as it is for most companies who move from AIM to FTSE250- but the nature of our trust which invests in purely private companies makes us an exception. A trust that is exclusively UK/EU private tech is a new boy on the block.

I don't think we have overshot and we therefore need to go to cash. Balance of probability is it will go up more before any dip and I fear the "probability" of a "missed train" more than the less probably and theoretical benefits of going to cash on the hope of buying cheaper later.

I'm still nearly 100% in GROW across all my platforms. I just can't find a single conviction buy elsewhere. GROW as a trust is already quite diversified across sectors and geography and I think still has hidden value not priced in.

Looked at UK builders who used to have good forward potential (which I blogged about at the time) but that is now all priced in and dividend yields dismal. Nothing at all interesting that will not dip with GROW in a general crash. Of course one can buy a stock that is basic commodities (or a down-market chain that might benefit from a downturn like poundland or wallmart). Still to not have profit just for possible protection in crash is not convincing. Nor do they always move countercyclically against the general market.

Gold does not always go up in a crash and might go down in the next 3 years. I worry that new technology will make mining cheaper. Bonds can be a hedge in a crash but that means negative interest rates until they protect you in a crash. It is better to have cash or just pay down the highest interest debt one has and plan to borrow again as needed post crash -if a crash ever comes.

I have a few Rolls (really a technology stock in a manufacturing wrapper), SMT, LG Battery, LG, RObo and Polar cap but they will all dip in a crash. My risk management on those is tight guaranteed stop losses. Maybe that's the best one can do. Ideas?

Edison notes that only one modest part of the core portfolio will generate some 65p/share earnings at the trust level in the first half of 2021-2022.

https://www.edisongroup.com/company/draper-esprit/2977/

That is insane. It is 1/3rd of what is needed for GROW to replicate the boost of 206 p in earnings per share in 2021. If we replicate 2021 the P/E of 5.2 we currently have is much too low both relative to our history (see LSE fundamentals) and the market in general.

So we are re-pricing based on 6 firm trends:

1) global money gong into UK EU private tech sector raising valuations.
2) Shift to retail investors who can't buy our underlying portfolio and will therefore pay a larger premium over trailing NAV/share if the growth rate of our underlying portfolio justifies it.
4) earnings growth rates of our underlying portfolio circa 45%
5) gross profit margins of our underlying portfolio of 65% above industry norms.
6) GROW is overly pessimistic on valuations and prospects and they are consistently and substantially re-priced and exceeded.

In July, Revolut announced an US$800m Series E funding round from Softbank and Tiger Global, valuing it at US$33bn (a six times uplift in 18 months). Based on the round, Draper Esprit’s stake is valued at c £119m (78p per share), an uplift of £99m from the FY21 year end valuation or 65p per share (before carry deductions). Draper Esprit completed its move from AIM to the main market on 23 July 2021.

So it is bold to say we have not seen the end of this re-pricing yet but I think it is justified. What a stonking buy these were in May 2021. Still a stonking buy. For me the best in the market I can find and still a really great ISA share and still a pretty good spread bet share for the next 2 or 3 years. YEs risk of a general market retrace that causes us to dip with the market but without going to cash how can one protect against that by pivoting out of GROW?

1) My understanding of GROW is our P/E on results day was 3.99 -a record low for us due to the high earning this year end. Since then it has risen to about 5.2 but still lowish . It is so low because the market (egged on by GROW guidance) does not think the 208 earnings per share for 2021 is replicable for 2022 and 2023. However as bloggers have pointed out money post March 31 2021 keeps rolling in. The whole covid related slow down in the performance of the underlying portfolio GROW predicted in results ending March 2020 is not happening and in fact it is the exact reverse. Now American money flooding into sector helping valuations (with one or two now a bit frothy).

2) Earnings in the underlying portfolio are equivalent to sales (more or less). Valuations are sometimes (half to 2/3rds) based on last round or post IPO market pricing. When these are not available the multiple of earning/sales used to aid valuations is about 3.0 for the core portfolio. Averaged over the whole core portfolio 5.0 is our typical earnings multiple. This is a tad low for the sector but our core portfolio is not typical. It has more big unlisted companies making good money already. Average profit margins are “already” 65% of sales which is above sector averages even for listed tech and “fantastic” for unlisted new companies. They don’t need funding rounds to grow. They will have retained profits. Of course most of our core portfolio plow that profit back into growth as well as looking for funding grounds to further accelerate growth. Thus 45% growth of earnings or sales on average in our core portfolio.

3) A portfolio making 65% gross and growing by 45% per annum should trade at some significant premium to NAV/share. I think as we floated in 2016 and journey towards the FTSE 100 we are moving from a small premium of 20% to 30% suitable for private funds who can participate in the same funding grounds (which limits how much of a premium they might pay a trust who holds the same potential shares) to retail investors and pension funds who don’t. Retail funds will increasing look at the growth rate and benchmark it against other listed companies. I think we are in the middle of a repricing. On top of that repricing we are having a boom due to overly conservative valuations an guidance. I think we will outperform the 20% per annum SP growth from her for a couple of years before we settle into a steady pattern of SP growth proportion to trailing NAV/share growth.

https://draperesprit.com/investors/plc/results-and-reports

as below note pages 26 on 2019 and page 16 on 2018 for average gross profit margin of core companies. This is a above industry norms for listed tech never mind probate "start ups".

well worth looking up a tidbit in the 2018 annual report page 16 and the 2019 annual report page 26 .

file:///C:/Users/josephs/Desktop/Documents/draper%20GROW%20results/Draper_Esprit_Annual_Report_2018.pdf

file:///C:/Users/josephs/Desktop/Documents/draper%20GROW%20results/Draper_Esprit_plc_Annual_Report_and_Accounts_FY2019%20(1).pdf

I no both it states the gross profit margins of the core portfolio is 65% and the aggregate revenue growth is 46% per annum.

Industry averages for grow profit margin are as flows or about 55%. This is for larger listed companies with potenatilly domaninat market positions so should be higher. Yet "only" 55%.

https://csimarket.com/Industry/industry_Profitability_Ratios.php?s=1000

With a core portfolio like that I think valuations of 3.2 revenue for level three core holdings is much too conservative. These are not small companies with a good business plan but high burn rates. They are much larger on average and have proven the can make money above sector averages, they can grow on retained profit if they choose and can increasingly pick an chose on IPO or funding rounds timings.

As level 3 companies get funding round valuations, or IPO, unbooked value will get booked. We will constantly surprise on the upside.

For my money I just can't see a stock with better forward prospects. I don't know why in the 2020 and 2021 results this useful bit of information is not there. Maybe GROW only share this with their institutional investors. I'd like to see more metrics on the core portfolio in the public realm.

Financial services exports to Europe rise despite Brexit

https://finerva.com/report/b2b-saas-2021-valuation-multiples/

first q of 2020 was a low for these and then almost doubled. We have stayed at the March 2020 low even though sector booming.

Seems to me our valuations are still conservative. As article states valuations of 10x revenue or even 20x revenue not uncommon so long as growth rate fast. Many of our portfolio without final round valuations are growing very very fast. 50% per year or more. Yet we have a weighted average valuation of "just" 4.8x march 31 2021 (see page 153 note 27 of our annual report). Even weirder our 4.8 is lower than last year which was 5.1 in the middle of the covid panic when valuations were guided downwards. SO maybe some (or a lot of) gas left in the tank.

https://news.crunchbase.com/news/k-shaped-economic-recovery-startups-vc/

https://draper-esprit.s3.amazonaws.com/production/uploads/document/file/88/Draper_Esprit_plc_FY21_Annual_Results__incorporated_by_reference_into_Prospectus_dated_19_July_2021_.pdf

W13 thanks again for the updates on the portfolio. Welcome back Sage.

YEs Sage I am waiting for graphcore. Deep value there and in that side of the GROW sector but maybe a slower burn. The more retail end of the portfolio has been "frothy" as we say but overall our complete portfolio is not valued at "froth" prices at all. We are somewhat insulated from that due to the 4 sector approach, the EU nature of the holdings and the private sector ownership -and thus lack of short term and unsustainable retail exuberance.

Some evidence American money coming over (or in the case of CAZOO our private companies going over there) and some rebalancing occurring towards the long term averages of higher US levels of NAV to sales and P/E's. Even at this SP we are a modest multiple of sales overall compared to sector averages for private tech and mush lower than listed tech.

In line with yourself but in my ISA it is a long term strategy of enough years that any dip can and will be ridden out. IN my spread bet, which by it's nature has to be a 3 year or less horizon (cost of positions and risk on any leverage used), I've allowed my leverage to come down to, for me, quite modest levels of around 35%. That is down from 80% when we were below 8.00 and I was convinced we were severely undervalued and due a short term jump. Most of that decrease is not selling but just the effect of the rise adding capital to the position.

I do worry that even 35% might be a bit high given UK and USA markets at peaks. A general market retrace coming at some point over the next 2 years and we will dip with the market even if our results are constantly improving. Good we are out of AIM as Aim tends to dip more than the market on general retraces. I think the next 2 months are good hold months as the impact and publicity of being in the the FTSE 250 sink in and our half yearly results exceed the quite low expectations published by GROW in the year end results in July .

GROW stated they aim to be in the FTSE 100 within a few years and they are well on their way. They soared into the FTSE 250 and have a much stronger upside potential than the rest of the index so should grow in relative terms regardless of the market in general.

I would pivot out of GROW a bit if I could find a share or trust equally convincing but I can't so sadly still 100% invested in GROW. At some point I will have to for safety reasons but not yet.

In spite of the risk of a general retrace it is a good time to hold equities. I'm a long way from converting to cash. It is just a matter of which global region, sector and share within the sector to choose. GROW ticks all the boxes for me. I don't mind GROW holding post IPO for a bit but do want them to divest within a year or two any remaining holding. If I want to hold traded tech I'd rater pick them myself. Maybe GROW if it wants to do this should split and have a trust that has traded tech shares.

We are above the premium over trailing NAV sage thought sensible. Be interesting his/her take on that.

I’ve always blogged that the premium should reflect in part our expected growth but is held back a bit by the ability of funds to participate in the same funding rounds of our underlying portfolio. SO we can be fast growing and still close to NAV/share. Big question is how close is reasonable given our fast growth.

Matters not much in the long run but “rebalancing” in the short run can give us a spurt.

NAV valuations going up so fast trailing NAV can be significantly out of date. Also assuming a fund could have bought the same underlying private companies assumes they were wise enough to have done so in full on the last round and have no regrets for having missed the boat and willing to buy GROW to get the indirect exposure. Also assumes they have the same intelligence as GROW on what is up and coming without having GROW’s seed funding entry points to young start up successes.

Anyhow I’m comfortable with an SP with a 70% to 100% premium to trailing NAV/share in the current booming private tech sector for various reasons. SO we have a way to go before I feel we are overrunning fundamentals. Very difficult to know how much funds will track retail investors who are unable to buy the core portfolio in any other way. If in theory we had only retail investors the SP would more fully reflect the spectacular growth rate. SP would be a “normal” P/E of a smoothed curve of earnings -which would be significantly higher than 11 quid.

For my money I think we have some road left even with this nice rise in the short run and in the medium and Long run we be driven by results and NAV upgrades.

Power ammunition = per annum

On results we had a P/E of 3.99. We currently have a P/E of 5.2.

Both much too low if we don’t significantly decelerate on earnings per year from the “boom” year ending March 31 2021.

W13 your helpful blogs indicate we will do quite well this year. The booming valuations of the core portfolio are not slowing down at all. Maybe we will just have 2 boom years followed by a bit of “ordinary” valuation increases of circa 20% power ammunition. Maybe 2020 2021 was not an aberration but the start of a multi year new trend. Maybe COVID and other AI and digital trends have for the next few years given our valuations a natural growth rate well above the target and achieved 20% per year.

I like Eu valuations on tech in general and private tech in particular much more than American . Not surprising CAZOO wanted to list in the USA. BIt frothy I think but nice to have in modest percentages of our holdings. I’m told of a Spanish private tech company with a valuation that is over 10x sales so maybe EU catching up. When we have to estimate NAV form multiples of sales we are using only 4.14 which I think is low for the sector and gives us some “gas in the tank” for when things slow down a bit. We were as high as 5.08 for the results ending March 31 2019. I do get the impression our GROW valuers are deliberately conservative where they have discretion to do so and the in house broker guidance also is conservative. I think GROW is playing a long game and within that better to underpromise rather than overpromise. Also better to smooth earnings by holding back as much as you can on a good year in the fear the next will not be as good. However you can’t bury good news forever as eventually there will be a funding round or IPO to give a real market value not an estimated one.

I’ve raised my 3 year price target for GROW to 2100 which is our current SP with 22% growth compounded. My gut tells me even this might turn out to be on the conservative side due to COVID acceleration but my head tells me better to follow the 5 year trend line and treat 20/21 as a bit of a blip rather than a new trend line.

I think it is dawning on enough funds that grow were overly pessimistic on earnings for this half and we will significantly exceed. This year may turn out more like last year in terms of earnings and that would mean a whole different premium on trailing NAV/share is appropriate. One can’t have a P/E of 4 for long. A big slow down in earnings (that is the NAV/share increases of the underlying portfolio) is priced in but will we really slow down much? So far the indicators are the portfolio is still booming in terms of valuations based on last round -and now a % traded so regularly updated.