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QD view – Money, money, money

We received news on Monday that the planned launch of Buffetology Smaller Companies Investment Trust would not proceed. The statement simply said that overall demand had not been sufficient to meet the minimum gross proceeds. This failure to launch follows hot on the heels of similar news from Tellworth British Recovery & Growth, that we talked about a few weeks ago. The third of the three planned UK trust launches – that of Schroder British Opportunities – is still on its way. A Schroders spokesperson said: “Schroders remains committed to launching the Schroder British Opportunities Trust (SBO) and supporting the future growth of British business, both public and private to seize a once in a generation valuation opportunity. Work on the launch of SBO continues to progress well and we look forward to updating the market in due course.”

Investors are nervous, with the US election next week and lockdowns starting in France, Germany and soon, perhaps, the UK. That does not mean that it is impossible to raise money, however.

Oversubscribed issue

Augmentum Fintech announced on Monday that it was looking to raise £28m (about 20% of its market cap) by issuing shares at 120p. This would be used to help fund a pipeline of investment opportunities. In the event, just days later, the share issue was oversubscribed and applications had to be scaled back.

Encouragingly, Augmentum Fintech allowed individual investors to participate in the issue, using the services of PrimaryBid. Almost £1m came in via the retail offer – all in the space of a few days. We still find it surprising and encouraging that investment companies can raise fairly substantial sums so quickly. In this case, it was probably helped by the decent track record of the fund this year. The three largest holdings help illustrate why Augmentum has been bucking the trend.

Augmentum’s largest investment is in Interactive Investor. The rise in importance of private investors is helping to drive income for this and other share trading platforms. The company has been bulking itself up by acquisition – absorbing Alliance Trust Savings and The Share Centre, for instance, but organic growth is impressive too. Trading volumes picked up as the market became more volatile in the Spring.

Tide is a digital business banking company that is capturing market share in accounts for and loans to small and medium sized UK businesses. In recognition of that, it has been sharing in the handouts that RBS was forced to make when it failed to demerge Williams & Glyn (the competition authority believes RBS has an unhealthily high market share and was seeking to compensate for that). Tide now has more than a 4% share of the British business banking market.

BullionVault offers a handy way for investors to invest in precious metals. The uncertainty that the pandemic has created, the collapse of interest rates and the vast stimulus injected into the global economy by central banks have all helped stimulate demand for gold, pushing up the price and dealing volumes.

These three businesses have also been amongst the best performing in Augmentum’s portfolio.

Augmentum listed in March 2018 and, until late last year, had tended to trade fairly close to asset value. The share price was hit in the pandemic panic but rebounded swiftly. Had you been brave enough to pick some up at the bottom, you could have doubled your money by now.

Profitable exits to come?

A number of Augmentum’s holdings pre-date the fund’s IPO; Interactive Investor and BullionVault are amongst the oldest. This has led to some speculation about whether the fund will look to book some profits on these. It is worth remembering that, as with other similar funds, these investments tend to be valued at a discount to where they would trade if they were public companies.

The managers have identified a number of opportunities for new investments. At the AGM at the end of September, this pipeline totalled £160m. £28m of that related to “near-term follow-on opportunities” and those can now be followed up on using the proceeds of this issue. We could see a disposal or two from the portfolio which would help fund some of the balance, but we also think it is likely that the fund will be coming back for more money at some point.

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NB this story was updated on 31 October as we are assured that the launch of Schroder British Opportunities is proceeding according to plan – and we wish it all the best.

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