rap, fib, pro - please check my numbers21 Nov 2020 14:15
Best I can I believe we had a unwarranted conservative valuation of the underlying private company assets in our 2020 year end results. Sooner or later this will correct itself. Be nice if someone who knows more about accounts and valuation of private companies than I could comment.
Turn to the year end accounts pages 31, 41 and 112.
Gross revenue was 121m in 2019 and 187m in 2020 of the core holdings. This works out to 5x “trailing price to sales ratios” sales as reported by IC in Jan 2020 (see below).
From Jan 2020 Investors chronicle.
"The core portfolio, which accounts for more than two-thirds of Draper’s assets, trades on a trailing price-to-sales ratio of just over five, based on pro-forma revenues of more than $120m. That might seem like a high multiple, but it’s worth noting that these businesses are growing at a clip. "
Gross sales/revenue of the core holdings was 187m in 2020 and the gross portfolio value after all valuations applied was 702.9m. This is a multiplier of 3.75 across the core portfolio. Quite a big dip in the average trailing multiplier from 2019.
This big dip is probably made up of 2 parts.
• Part 1: 2019 valuations by last round totaled 295m and by multiple of earnings 217m. In 2020 it was 231.7m by last round and 401.3m on multiples of earnings. Thus the percentage valued by multiples went up from 43.2% to 63.4%. If one applies the 20% differential to an assumption that 6x earnings was the norm for last round valuations and 3.2x to earnings multiples this would account for approximately 0.6 of the drop from 5x to 3.75x earnings overall across the core portfolio. If once goes back to 2018 it was about half and half between last round and earnings multiples. So 63.4% earnings multiple valuations for 2020 is a bit high historically.
• Part 2: Second was the multiple company specific adjustments to take into account COVID related earnings uncertainty going forward. As they say was individual but overall resulted in a drop of around 0.6% in the revenue multiple of revenue from the whole of the core holding of 187m x 3.75 in 2020 from 121m x 5 in 2019.
Thus if I am reading the accounts correctly roughly half of the dip in valuations for 2020 of the core portfolio was due to the shift from last round to earnings multiples and only half to covid specific adjustments (due to a view that forward earnings might become slower).
Ideally one would have a table in the accounts that give the trailing price to sales ratios by year and further broken down by final round valuation and earnings multiple valuations. That would allow investors a clearer view of the adjustments made and thus the risk reward of holding shares.
Shares in circulation changed less than 1% between 2019 and 2020 year end. Thus if the same trailing earnings multiple that was averaged across the portfolio in 2019 was applied to 2020 the resulting NAV/share would be been 187m x 5 or 935m not the 657m net valuation
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