- Net asset value (NAV) declines 25 per cent to $210mn (668¢ a share) in first half of 2022
- Revaluations of holdings in Bolt and Backblaze explain $72mn portfolio valuation reduction
- 40 per cent share price discount to spot NAV
Half-year results from TMT Investments (TMT:416¢), a venture capital company with a portfolio of high-growth, internet-based companies, bear the scars of this year’s larger-cap public market technology sector sell-off which has also impacted valuations of privately held start-ups.
The group’s largest holding is a 1.26 per cent stake in international taxi and food delivery company Bolt – worth $103.3mn (£85.4mn) following a €628mn (£532mn) fundraising round in January 2022. At 30 June 2022, the holding was marked down 28 per cent in value to $74.3mn to reflect comparable valuations of listed rivals Uber Technologies (US:UBER) and Lyft (US:LYFT), both of which were heavily de-rated in the first half of 2022. However, their stock prices have since bounced back by 54 per cent and 45 per cent, respectively, suggesting that TMT’s holding in Bolt is likely to be materially revalued upwards in the annual results.
The same is true of TMT’s 11.2 per cent stake in Nasdaq-quoted cloud storage group Backblaze (US:BLZE). Its value was slashed from $63mn to $19.5mn in the first half, but is worth $28mn at current prices, adding 27¢ a share to TMT’s half-year NAV per share of 668¢.
These portfolio movements are in no way a reflection of the operational progress of either company, but more the value that investors are willing to pay in the current climate. Bearing this in mind, it’s worth noting that TMT’s earlier-stage start-ups (late-seed/pre-Series A opportunities), a segment of the venture capital market that has held up remarkably well, represent 95 per cent of its 55-plus portfolio companies and 45 per cent of the total portfolio valuation. In fact, TMT only booked $4.25mn of write-downs on five other holdings, with half this sum due to Russian exposure.
Moreover, new equity funding rounds at five early-stage fast-growing digital technology start-ups contributed $4.8mn of uplifts to increase their combined valuations above $10mn, highlighting TMT’s strategy of not overpaying in the first place, and structuring funding through convertible loan notes to avoid dilution. The composition of the portfolio also highlights TMT’s defensive characteristics in the current investment climate. Importantly, the group retains $14mn of cash to deploy on selective new investments, having invested $7.3mn across six new holdings in the first half of 2022.
It’s fair to say that the first-half valuation downgrades are baked in with TMT’s share price trading 40 per cent below spot NAV. The discount to NAV also fails to acknowledge that TMT has delivered an impressive internal rate of return of 26.6 per cent a year over the past five years, and holds a well-diversified portfolio invested around high-growth market segments: SaaS (software-as-a-service), marketplaces, big data/cloud, EdTech, FinTech, ecommerce, and FoodTech solutions.
I included TMT’s shares, at 250¢, in my market-beating 2019 Bargain Shares Portfolio and banked dividends of 20¢ a share. Having last rated the shares a buy, at 490¢, when I covered the annual results (‘A trio of Ben Graham value plays’, 28 March 2022), and with the directors guiding investors to expect “a number of positive revaluations across the portfolio by the end of 2022”, I strongly feel that the investment risk is skewed heavily to the upside. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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