Draper Esprit's value gap

Investing exclusively in private technology companies, venture capital firm Draper Esprit (GROW) aims to sell tickets straight to the party’s VIP lounge. In this field, its track record is excellent. Since listing on Aim and the Dublin exchanges in 2016, it has returned at least 20 per cent per year, during which time it has more than tripled its money on the 10 exits it has completed. Naturally, investment casualties litter the sector in which Draper invests, which is also subject to volatile sentiment. Fortunately, the group’s rigorous selection process, strong network, and existing list of high-quality investments all provide considerable insulation, as well as massive potential.

You wouldn’t know this from Draper’s current price, however. With a market capitalisation of £544m, the group trades just below its trailing book value, if you add the £100m it raised in February’s 530p a share placing to the £450m of shareholder equity on the balance sheet at the end of September. Yet there is a list of reasons to think net assets will come in above the group’s market capitalisation when Draper reports its full-year numbers on 4 June.

For one, recent portfolio events suggest the value of Draper’s holdings of companies looks like it is continuing to rev higher whereas the current discount would appear to suggest the opposite. True, it has converted most of the recently raised cash into less liquid holdings in two Europe-focused private equity vehicles, Earlybird IV and Digital East Fund 2013. But one of the stakes acquired through the deal, New York-based automation firm UiPath, has just completed a funding round valuing it at $7bn (£5.5bn), suggesting the £13m Draper paid for its stake has tripled.

TransferWise is another portfolio company to reach unicorn status, following a recent secondary share sale which valued the cross-border payments group at $3.5bn. Having marked its fair value for the company at £27.7m as of March, Draper sold down its holding to £12m, helping it to payback its original stake within 18 months. Analysts at Peel Hunt reckon these updates have added 27p to Draper’s net asset value (NAV), taking book value to 519p, or an increase of 14 per cent since September.