Augmentum Fintech (AUGM:102.5p), the first publicly listed fintech fund in the UK, reported a modest 2.4 per cent rise in net asset value (NAV) per share to 112.6p in the six months to 30 September 2019. However, the headline numbers masks some material gains made on several of the company’s holdings.
That’s because Zopa, the world’s first peer-to-peer consumer lending platform, faced a challenging investment climate to raise the £140m regulatory capital required by the banking regulator ahead of launching its bank. There had been “significant investor interest” in the raise, but many potential investors wanted to wait until there is greater economic and political stability in the UK before committing.
However, the Prudential Regulator Authority (PRA) has stringent timelines, so Zopa had to raise the capital from a diminished pool of investors by the PRA’s deadline of 3 December. As a result, Augmentum has had to mark down its 6.2 per cent stake in Zopa from £22m to £11.7m, effectively wiping 8.8p off NAV per share to align the carrying value with the low ball valuation in this month’s funding round. The fact that the company still managed to report net investment gains of £4.6m overall reflects the benefits of having a diversified investment portfolio.
For example, Augmentum’s 3.7 per cent stake in Interactive Investor (ii), a leading UK investment platform, was marked up from £10m to £14.7m, or three times higher than the £3.2m Augmentum first invested in the company. In the 2018 financial year, ii reported pre-tax profit of £8.9m on revenue of £73m, and since then the business will have benefited from the acquisition of Alliance Trust Savings. Moreover, the carrying value in Augmentum’s accounts represents a deep discount to the earnings multiples enjoyed by listed peers AJ Bell (AJB) and Hargreaves Lansdown (HL.), so there is scope for further material gains.
Augmentum’s investment in Tide, an emerging force in the small- and medium-sized enterprises (SMEs) challenger banking sector, delivered a similar sized uplift after the company exchanged its convertible debt for equity. Augmentum now owns a 6.3 per cent stake in the rapidly growing company worth £14.2m, or £5.2m higher than its £9m investment. In addition, Augmentum’s £9m investment in Monese (monese.com), the UK-based fast-growing mobile-only current account provider, has been marked up by £2.5m following a recent £45m funding round backed by the likes of PayPal.
Admittedly, Augmentum’s shares are trading in line with the 102.4p entry point in my market-beating 2019 Bargain Shares Portfolio and are rated 9 per cent below NAV. However, the company’s latest NAV of £131m includes £29m of cash, so there is ample funding to make additional fintech investments, while at the same time the value creation from the existing portfolio should keep NAV per share on an upward trajectory. Buy.
Crystal Amber takes a hit
Activist fund manager Crystal Amber (CRS:142.5p) has endured a torrid time since the start of October when the holding was just about flatlining on my entry point in my 2018 Bargain Shares Portfolio.
NAV per share subsequently declined by 9 per cent to 202p during October and I estimate that it has declined a further 15 per cent to 172p since then, of which about 23p of the reversal has come in the first six trading days of December. Since the start of last week, Crystal Amber’s largest holding, Hurricane Energy (HUR), an oil explorer that has a huge resource base in a strategically important part of the North Sea, has lost 31 per cent of its market value following badly received well results that wiped 16.5p off Crystal Amber’s NAV per share; foreign currency payment services provider Equals (EQLS) has shed 11 per cent of its market value, wiping off 4p a share off the company’s NAV; and beleaguered bank note printer De La Rue’s share price has declined 16 per cent, knocking a further 2p a share off NAV.
Unfortunately, I can’t see a catalyst to reverse the negative sentiment that has sparked the share price declines in a number of Crystal Amber’s portfolio companies, leaving little option other than to protect capital and exit. Sell.
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