Member Info for steph

FLib

I agree the hope/expectation we have of 20% returns over the next 5 to 10 years is a historical anomaly and can only happen if you catch the right place and time during a period of disruptive economic change.

I think we are there with MERI and GROW. Call us “strategic economists” I suppose.

I worry the big tech and social media firms are going to slow down as the run into regulatory, monopoly and society acceptance limits. The very high P/E’s have rapid growth priced in that may unwind a bit producing unexciting SP growth over the next 10 years.

There will be huge growth in industrial robotics and industrial services. Robots about to reach the technology and price point where they can be freed from the bases they have been bolted into over the last 40 years and roam, train and imitate humans for tasks that were designed for humans.

This is a massive change. For 200 years machines have been slowly displacing human labour but always and only for a process that was designed specifically for a machine. Now it will be a pricing decision as to whether to replace a human on a process that was designed for humans. We are near lift off on that one and once it starts it will accelerate exponentially as mass production reduces prices creating a self-perpetuating feedback loop.

Less swift will be robots in the home replacing cleaning, washing and cooking effort. Still a big market though but the economics not as brutal as industry. Habits and routines within the home are often cultural and change generationally and incrementally and not at the arrival of the first price inflection point. Shopping for, preparing, cooking and presenting a meal will endure for humans long after it makes no economic sense to do so. Billionaires still prepare home cooked meals for guests and family for the same reason.

Cleaning dishes and clothes even in the home, however, will go as soon as a robot can do it cost effectively. We are not there yet and machines do exist that do much of the hard labour that existed 70 years ago so the value add of true robotics is not so large.

Cleaning toilets and floors however will likely go as soon as the technology and price point exists.

Hospitals and home care a big market. Basically anything where a salary has to be paid that can be done by a robot.

I have a few L&G ROBO Global Robotics and Automation and would have more if I thought that a lot of future growth was not already priced in.

https://www.lse.co.uk/rns/MERI/net-asset-values-0i5vpzyvso24m30.html

apologies. MERI has a June 30 2020 NAV/share of 137.26, a 31 march 2020 NAv/share of 108.65 and a 30 Sept NAv/share of 113.3. So currently MERI SP 15% above trailing NAV/share and GROW 5%.

So followed a similar trajectory to GROW (down a bit in March 2020 due to covid) but as the RNS for 30 June 2020 say for MERI there was an improvement in the background investor sentiment that has not yet been picked up by GROW valuations even though they are similar or the same companies.

"June's NAV represents a 26% uplift since 31 March 2020. The principle contributing factors to this increase were:

- Re-rating, driven by thematic positioning - There has been a strong rebound in equity markets since the beginning of the period and a material re-rating of technology and ecommerce assets. The portfolio is particularly exposed to these sectors, and assets have typically been valued with reference to relevant sets of listed comparable companies."

Today MERI's SP is nearly 60% above trialing nav/share and GROW's only 5%

I can't see any reason for the differential. Indeed I think GROW has a better wider and deeper feeder pipeline of small start up companies that become candidates, with deep knowledge, to get into the 5million plus core portfolio.

I think GROW puts more effort and skilled staff time into reviewing 1000's of candidate start ups for funding through it's seed fund structures than MERI. IN time that should lead to over performance compared to MERI.

upcoming Graphcore IPO by 2022 just one more bit of gas in the tank. between 2bn and 10 bn a large range.

I've been topping up when it dipped today below 6.30. NO good reason for the dip. We should be 40% ahead of trailing NAV/share to be in line with MERI and AUGM and then some for reasons well discussed.

https://www.telegraph.co.uk/technology/2020/12/06/blow-uk-tech-ambitions-graphcore-mulls-nasdaq-listing/

Be nice if it went for 10bn

As mentioned the one thing I'd change about GROW strategy is to be big enough to hang onto post IPO tech start ups when the deeper knowledge allows them to understand the post IPO value.

Always sad to see a great share turn into cash but that is the business model. If a fund bought GROW at a healthy premium to our current SP I'd be sad to see the whole thing go but 2 years expected SP increases go part way to compensating. .

As I thought with TEF (and it happened), GROW must be a acquisition target at some point if we stay near our "conservative" NAV/share. A lot of unrealized value visible in any due diligence that a big fund would do before breakfast. Whole company a bite sized morsel for some.

thanks, I've got just north of 6,000 pounds in MERI and will keep increasing on any dip.

I have more of a professional expertise in UK housebuilding market, especially East London, and that is why I was so comfortable with Telford Homes before it went private and pushed me out.

Even though I think the UK builders are depressed a bit right now due to Covid and Brexit uncertainty and can certainly lift 50% from currently SP's I think there is more certainty and longer term upside to UK/EU private pre ipo growing and currently profitable tech companies.

So now that I have been forced to shift outside of TEF I've settled on this sector and GROW within it in particular. I really like the fact GROW also have seed funds, do the legwork and join boards. I don't think MERI does that. Costs a bit extra in admin but is well worth it.

The only thing I'd change about GROW is not to fund new investment by exiting good companies. Exit of course if they think the SP will go nowhere post IPO but not as a obligatory funding mechanism. Seems a waste of acquired knowledge of the company.

Seems they can raise money at prevailing trialing NAV/share and prevailing SP so they could continue to do that indefinitely to generate the funds needed for new purchases of post start up pre mid sized profitable private tech companies. Grow would then slowly get bigger and bigger and over time have larger companies in it's core. IN effect cover the full range of development from the 50,000 start up investments up to ownership of GROW grown companies that have become global.

I do as part of general economic strategies some promoting of innovation clusters on behalf of government so tangentially involved. Often not company specific.

This accounting stuff is heavy going though.

Picked up a few more meri.

Need to do a lot more research to plow in but on my wish list

4) I am reassured by IC’s comment on the 2019 results that a 5x multiple of revenue of the core portfolio to create NAV, although a bit high was reasonable for fast growing tech private companies”. This is a key observation and assumption. Looking at comparables I am satisfied that 5x is reasonable and probably a bit low for the long run. IN addition, unlike a single private company, GROW’s ownership covers 1/3rd more than the core portfolio so the 5x carries the weight of the whole and not just the core.
5) Between 2019 and 2020 results there was hardly any share dilution and then, predictably, revenue per GROW share of the core portfolio jumped very nicely indeed. I calculate over 50%. Yet NAV/share jumped only 10% due to a lower average revenue to nav ratio. So potentially 40% in the tank if/when 2019 revenue to nav ratios return
6) Update sep 30 2020 looks on track to deliver by March 31 2021 increased revenue per share (and thus NAV/share). Revenue “budget” by year end of core portfolio on page 6 stated to be 240m which if it comes to pass and there are 139m shares in circ is a nice increase in Revenue per share even with the modest dilution.
7) If revenue per share in the core portfolio holds against budget and the multiplier of core portfolio revenue per share returns to 2019 levels the resulting NAV/share would be 8.73.
8) Sooner or later I believe there will be a valuation correction towards the 2019 results. Thus on top of excellent organic growth of circa 15% to 20% per year I believe there is 40% plus gas in the tank.

Anyhow in conclusion I remain comfortable to be all in. Great sector and great company to exploit the sector to the full. Very happy to plan to hold for 10 years.

I don't want stock pickers sitting in Mayfair office on high fees. I want reviewers in the field throughout the mid sized towns of the UK and EU going to the companies themselves, sitting on boards and making informed decisions beyond the often inflated business plans . I don't want blowhard dot com bragging driving my investment where the loudest braggart got the most money. I don't mind paying Grow staff to do the actual legwork. They add value when they do that and can avoid herd mentality and results where VC money ends up chasing itself.

Flib

I’m new to seriously understanding the accountancy angle of company accounts, as you might have guessed. My area is more the economics of the sector -where I am much more comfortable and have some claim to professional experience.
I’ve got nearly all of my ISA in this one share. As risk management I prefer to deeply understand one good share within a sector I believe in than diversify for the sake of it.
It will not be until a real AGM when I will have the chance to ask the sort of questions any corporate investor in GROW will do routinely regarding the performance of the underlying companies. The only consistent bit of visible and hard data over the years we have as retail investors is the aggregate average of revenue of the core portfolio covering about 2/3rds of GROW’s NAV. Nothing wrong with that situation. Retail investors will always be at an information disadvantage compared to corporates and few beyond myself would really care. It is seriously time consuming.
Clearly the board has some discretion with regards to the valuations. They say so. Discretion on the downside is one thing but what if they use that discretion to “goose” the SP by generous valuations on the other? I need to feel reassured by numbers and not just a “trust us” situation they are not doing that.
Looking at revenue per share within the core portfolio I am reasonably confident this is not happening. Confident enough to remain fully invested.
Revenue per GROW share of the core portfolio actually dipped between the 2017 results and the 2019 results yet NAV/share went up nicely. That could be a warning sign of “goosing”. The two should over time be roughly aligned.
I’m satisfied there is a reasonable explanation.
1) As the company transitions from purely private to retail it has started to align with sector valuation norms. This has likely had an uplift effect and will probably continue to do so. I think the evidence is that private tech firms are IPOing later and at higher valuations measured by pre IPO revenue per share.
2) As GROW gets larger and the investments and firms in the core portfolio get larger the multiples of revenue to create NAV naturally increase. Size matters. The bigger the firm the higher the multiple in the sector.
3) Mostly though it seems to be the effect of fund raising and issuing new equity with those funds. New funds, even when issued at trailing NAV/share and prevailing SP, immediate dilute the share ownership. If temporarily cash it lifts NAV/share exactly proportional to the money that came in (diluting profits per share but nothing else). However as cash it had a dramatic impact on GROW’s gross revenue per core portfolio. When shares in issue went up from 40m to 70 m between 2017 and 2018 results this dilution effect on revenue of the core portfolio per GROW share in issue was likely substantial. In theory it could have been up to 75%.

At the end of October, Draper joined several investors including London Stock Exchange (LSE) and Fidelity in funding a $50m Series B round for PrimaryBid, the platform that allows retail investors to participate in capital raises for listed UK companies. Chief executive Martin Davis, convinced by the acumen of the platform’s management team, sees “no reason” why the group’s strong run this year won’t continue.

Three more as-yet unannounced investments have been signed, including a new stake in what Mr Davis termed the passion economy – the fast-growing infrastructure around social media influencers. The focus on deep-tech, for which “Covid has just been a blip”, remains steadfast.

While tech-themed hyper-growth sectors have been the flavour of 2020, Draper Esprit shares also appear to have benefited from the rotation to value. They now sit at a premium to Numis’ forecast NAV of 623p per share for March 2021, though this quickly slips back to a 9 per cent discount against FY2022 forecasts.

Little about the company’s market support, portfolio outlook or desire to re-invest cash realisations suggest growth is about to grind to a halt. Buy.

Last IC View: Buy, 596p, 6 Oct 2020

Nov 30, 2020 Update: Buy at 650p

We said BUY at 490p on 16 Jan 2020 Tip performance to date+33%
By Alex Newman

•Portfolio demand maintained despite realisations
•Shares now sit at premium to NAV

While terrible for many sectors, 2020 has been a turning point for some. Aim-listed Draper Esprit (GROW), the technology-focused venture capital fund, is in the latter camp.

Despite realising £106m from portfolio stake sales in the six months to September, its gross portfolio value has remained unchanged at £702m. With either a great appetite for higher-risk funds, or a newfound appreciation for Draper’s track record, the market has woken up.

Deals struck since the period-end – and a £110m fundraising – suggest the pipeline remains active.

The reason I am fixated on revenue per core holding multiples to create NAV/share is as follows.

1) if the multiple of revenue of the core holding per share is the same as 2019 finals (5.08)
2) If the September 2020 interims estimate of revenue per core holding of 240m holds
3) if shares in circ on year end 2021 are 139m
4) than 5.08x240m/139m = nav/share of 8.73 for March 31 2021

Of course we may never get 5.08 again (and likely not all in one go by March 31 2021) but looking at these US pre IPO tech averages maybe we will. Maybe more.

https://preferredreturn.com/blog/public-tech-company-valuation-multiples-2015-2019/

If we tiddler retail investors were big private funds buying GROW we would have access to the hard numbers on the underlying private companies an be able to make our own decisions on the source data.

As it is there is a certain amount of "trust us" in the dearth of information about the underlying company's financial performance on an individual level. I suppose that is the downside of a retail investor accessible trust.

I'm confident that at a current core portfolio revenue multiplier of 3.54 (with profits around 65% of revenue) to get NAV we have a lot of room to run and this is a "deep value" share. Of course core only makes up about 2/3rds of NAV so is carrying the weight of the whole portfolio when compared to a single private tech company pre IPO.

" We look forward to building on our strong first half performance with the goal of rewarding our investors further for their support."

Its OK but they have held back from any revaluation of covid related nav methodology. It is the strait forward organic growth. Gas was left in the tank for next time.

looking forward to 7am RNS. It could be anything from a modest confirmation of NAV/share of "at least" 595 (leaving the major 30% plus revaluation of NAV/share back to 2019 multiples of revenue/share of portfolio for later) to something much more interesting.

Be interesting to see the forward guidance. They may bury the good news in that and leave the NAV revaluation from Covid panic levels till year end and next just to give them flex.

Thanks I’ll check it out

I think grow has some room to run before it corrects for what I think were panicked valuations .

Never the less I do want to diversify a bit in the same pre ipo eu tech stock Private but profitable pool so a one misstep by grow is not so painful.

Only a Traiding hour to go until half yearly.

No idea if the valuations will be close to 4x or 5 x earnings of core but over time I expect they will be 5. Can be “at least” 5.95 at 4x so maybe they will leave the gas in the tank for the end of year.

I would I
Assuming earnings per share will be suppressed a bit due to 100m absorption diluting shares but no time yet to accelerate earnings by increasing holdings proportionately and there being time for those new holdings to produce half yearly nav updates.

yes higher inflation combined with low interest rates. Sweet for assets in general, us and house builders.

in the last 5 weeks we have dipped 20 to 40 points weekly and more than made up for it shortly afterwards. I think it is just volatility and have been topping up a bit each time. I'd rather we have a slow rock steady climb but that is not the way of the world.

?" The 5 analysts offering 12 month price targets for Draper Esprit PLC have a median target of 683.00, with a high estimate of 730.00 and a low estimate of 640.00. The median estimate represents a 5.40% increase from the last price of 648.00."

I don't know who the broker is who is giving 7.30. Berenberg Bank is giving 7.00
I'm hoping all will be upgraded following Monday half yearly results. We dropped from NAV/share being an average of 5.08xcore portfolio revenue in 2019 results (which IC thought OK in spite of being a bit high) to 4.14 in 2020 due to covid and a lower amount of last round purchases helping valuations upwards.