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Exploiting the fintech investment opportunity

The first London Stock Exchange-listed fintech fund has delivered some eye-catching gains on its portfolio

Augmentum Fintech (AUGM:111p), a leading venture capital investment group that became the first London Stock Exchange listed fintech fund when it raised £94m, at 100p a share in March 2018, has more than justified its inclusion in my 2019 Bargain Shares Portfolio.

This week's maiden annual results revealed that Augmentum’s investment portfolio was valued at £77.6m, including valuation gains of £12.2m, and the company will have substantially fully deployed the remaining £25m of available cash by mid-2019. The seed portfolio has produced an eye-catching 28 per cent internal rate of return since launch, buoyed by hefty gains on its two largest holdings: Zopa, the world’s first peer-to-peer consumer lending platform; and interactive investor (ii), a leading UK investment platform offering analysis, tools and expert ideas to help investors make better informed investment decisions.

Zopa directly matches people looking for a competitive loan rate with investors looking for a higher rate of return, and has lent more than £3.7bn to low-risk UK borrowers since 2004. Augmentum’s 6.2 per cent stake in Zopa was revalued upwards by £3.4m to £22m, and should gain further value once Zopa launches a full bank later this year. The uplift booked on Augmentum’s 3.7 per cent stake in ii was even greater, rising in value from £3.1m to £10m, implying a valuation of £270m for ii on price-to-book value of 2.7 times. Since 2013, the investment platform market in the UK has almost doubled in size to £500bn of assets under management, buoyed by the opening of 2.2m new customer accounts. ii has a 10 per cent share of the UK direct-to-consumer investment platform market and is the second-largest player in this space.

Augmentum has been reaping gains on new investments, too, participating in a £45m funding round at Monese, a smart and globally connected banking service for internationally mobile individuals. Launched in late 2015, Monese has signed up more than 600,000 customers who move in excess of £2bn of funds through their accounts each year. Augmentum booked a gain of £1.26m, a 24 per cent uplift, on its 5.4 per cent equity stake.

With deal flow robust – the company’s investment managers made nine new investments out of the 675 opportunities reviewed and the current pipeline is worth £450m – then the directors will seek shareholder authority to issue new shares at the general meeting on Monday 1 July. Investor demand is likely to be robust. Buy.

 

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