RE: ST tip in IC16 Dec 2023 09:20
Part 2
Questor first tipped Augmentum in January 2019 at 98.4p, then again at 117.5p in March 2022 and most recently at 109.3p in August last year. If we had foreseen how bad the slump would be we would have been better in selling 20 months ago. We didn’t and, at the risk of sounding like a broken record, the shares still look highly attractive on a 38pc discount to asset value.
Having held on for so long, it would be wrong to abandon Augmentum when its investments are bearing fruit. While the shares have gone back to square one, most of the companies it invests in have progressed well. The top 10 holdings accounting for 82pc of assets grew revenues by an average of 74% in the year to September, according to the company.
Under chief executive Tim Levene, Augmentum has made five profitable exits from investments since launch, most notably the sale of broker Interactive Investor last year to fund management group Abrdn from which it netted £42.8m. During the latest half-year, it garnered a further £22.8m from the sale of zero carbon workplace pension provider Cushion to NatWest bank, a deal on which it made 2.1 times its original investment.
That transaction took the total figure Augmentum has raised so far in sales that have achieved an average 30pc mark-up for shareholders to £84m. It also confirms how desirable Augmentum’s fintech start-ups are to big financial institutions as they seek to modernise their businesses, adapt to new technologies like artificial intelligence and cut costs.
Augmentum has used its cash windfalls wisely, making £6.9m of follow-on investments in Volt, the account-to-account payment provider, Habibo, a digital mortgage broker, and Berlin-based Grover.
That support to portfolio companies has been balanced with buying back £4.2m of shares in a bid to narrow the wide discount but also to lock in a gain for shareholders from repurchasing cheap stock.
While the company is unable to raise more money from issuing shares while trading on a discount, it is confident that with an average of 29 months of funds, its top companies have what they need to achieve profitability. Tide, the biggest holding at 15.2pc of assets, is already profitable in the UK and is expanding rapidly in India.
Mr Levene believes markets are showing early signs of a recovery with interest rates held steady in the UK and the US.
“This signals a cautious yet hopeful economic outlook,” he told shareholders.
“This, combined with the continual move towards the digitisation of financial services and Augmentum’s disciplined approach to both investment and valuation will, we believe, offer exceptional opportunities for us.”
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