Where does Molten flow from here?

Funding for technology ventures is unlikely to win any popularity stakes with investors, who have been burned enough by tech investments over the past two years to be wary of backing the Next Big Thing. Specialist investment house and fund manager Molten Ventures (GROW) has not escaped the technology sector’s general malaise and, in the aftermath of the half-year results, the company’s shares hovered at a discount to net asset value (NAV) of 66 per cent. While the technology sector has clearly suffered after an unsustainable boom in 2021, the subsequent rise in interest rates has also caused problems; it means Molten must manage its balance sheet rigorously in favour of short-term liquidity.

CFO Ben Wilkinson explained the impact of interest rates on the venture capital industry. “We are just starting to see people gain more confidence in the pricing of early-stage assets now that there seems to be agreement that interest rates will stay higher for longer,” he said. Management reckons that European venture capital has started raising money again, but realisations are still taking longer than expected.

In Molten Ventures' case, the company managed to generate cash proceeds from realisations of £33mn, compared with just £13m at this time last year. This represents about 3 per cent of the total portfolio, whereas the company would typically target about 10 per cent of its portfolio for sale each year. In other words, though there is a definite improvement in the underlying market, times are still tough. The company ended the half with a total portfolio value of £1.3bn, marginally down on this point in 2022.   

It is also undeniable that the resulting large share price discount to NAV places two distinct burdens on the company. Firstly, the pressure to keep capital allocated towards liquidity, rather than investments has increased – fundamentally cash is earning more in the bank than in the market – while the possibility of a low-ball takeover offer means that it must be able to fund its defence. In addition to its consolidated cash of £25mn, the company can draw down about £60mn from the remainder of a £150mn debt facility, if needed.   

Like the rest of the sector, Molten Ventures must prove in the bad times that it is more than a speculative play on future technology. Broker Numis forecasts an NAV of 780p for the end of the year, implying an even greater discount than at current levels. A very speculative buy.

Last IC View: Hold, 279p, 19 Jun 2023