Edinburgh Worldwide NAV soars – Over the year to 31 October 2020 Edinburgh Worldwide’s NAV (including income) rose by 57.8% and the share price by 63.9%. The comparative index, the S&P Global Small Cap Index total return, increased by 0.4% in sterling terms. There is no final dividend. Portfolio turnover was 8.4% compared to 4.5% in 2019 and the ongoing charges have reduced to 0.72% from 0.75%. At the end of October 2019, the company had a market capitalisation of around £530.8 million and was a constituent of the Small Cap Index. Twelve months on, this was £1,018.7 million and the company is now a constituent of the 250 Index. £133m worth of shares were issued in response to demand.
The chairman highlights the performance of: Tesla (electric cars, autonomous driving and solar energy); Ocado (online grocery retailer and technology provider); Teladoc (a telemedicine service provider); and Chegg (an online education company).
Two new unlisted investments were made during the year: Epic Games, a US gaming platform; and, Graphcore Limited, a UK developer of intelligent computing solutions. Additions were made to the existing investments in Oxford Nanopore Technologies, Reaction Engines and Space Exploration Technologies (‘SpaceX’). The other unlisted investments in the portfolio are Akili Interactive Labs, KSQ Therapeutics, PsiQuantum and Spire Global.
Extract from the manager’s report
“In aggregate the portfolio has performed strongly in the year to 31 October 2020. This was driven by several stocks producing sizable gains over the period exemplified by 22 holdings more than doubling their share price and 7 holdings more than tripling. The most significant contribution to performance came from the long-standing position in Tesla, the electric vehicle company. Through broadening its manufacturing footprint, expanding its product range and a widening of the competitive gap on several fronts versus the incumbent automotive companies, Tesla continues to capitalise on its initial status as a technology-powered disruptor in a vast end market. Ongoing battery and autonomous driving developments combined with likely benefits of manufacturing scale in the face of robust demand give us confidence that the company can further build on its growth strength and differentiation. We did make a reduction to the holding, but this was based on maintaining portfolio diversification. Despite this, it remains our largest portfolio holding at year end and we are excited about the path from here.
The consequences of decades worth of over reliance upon fossil fuel burning as the dominant energy source is arguably the most daunting challenge facing the world. Increasingly we expect significant entrepreneurial resource to be directed at this challenge and while still early in that response progress at companies like Tesla, or the UK fuel cell company Ceres Power, give some cause for optimism.
The robust contribution to performance from holdings such as Ocado (online grocery), Teladoc (telemedicine), Chegg (online education), MarketAxess (electronic bond trading), Zillow (online property portal) and Wayfair (online home furnishings) are indicative of the ascendency of digital platforms in the current environment. It must be expected that some of the immediate operational strength of these companies stems from unnaturally skewed demand and therefore might be expected to moderate post the pandemic. However, we believe the lasting impact is likely to be that the services provided by these companies go from being perceived merely as alternatives to a more scalable, future-proofed way forward.
In the Interim Report we discussed the purchases of LiveRamp, EverQuote, Huya, Tabula Rasa and Graphcore. New purchases in the second half of the Company’s financial year comprised Sutro Biopharma, Q2 Holdings, Agora, Berkeley Lights, Cloudera, LivePerson, American Superconductor, Everbridge and Epic Games.
Sutro Biopharma has developed a novel cell-free protein synthesis technology. This represents a much more scalable approach than traditional cell cultures techniques and allows unprecedented precision in protein design and structure. It makes it possible to design and rapidly produce novel proteins with optimal therapeutic efficacy and stable, predictable pharmacokinetic features. Sutro is looking to commercialise the technology by developing drugs for the treatment of cancer patients, both through partnerships with large pharmaceutical companies and on its own.
Q2 Holdings sells cloud-based virtual banking software to regional banks and credit unions in the US. Its product portfolio is geared toward a bank’s front-end operations, for example online access for account holders, voice messaging, mobile banking, bill payments, etc. Its aim is to help small regional banks compete with larger national banks by providing them with access to up-to-date technology. This is critical as banking is increasingly becoming digital. We see significant opportunity for Q2 Holdings to take share amongst the fragmented base of regional banks backed by a strong structural driver of digitisation within customer aspects of banks.
Agora Inc (ADR) is a Chinese company that provides a real-time engagement platform to application developers allowing them to easily embed high quality video-based communication in their applications (e.g. apps focused on gaming, education or telemedicine). Through working with many of the leading Chinese app developers, Agora has built significant mindshare within its core market, increasingly this translates to much faster development cycles as it can refine the product with high volume real-world data and not be heavily dependent upon simulated scenarios.
Berkeley Lights develops equipment that enables the precise control and characterisation of single cells. Its technology is based on using light to control the movements of fluid and cells on a semiconductor chip. This has the potential to simplify researchers’ workflow, speed up experiments and generate more insights. Berkeley Lights is focusing on commercialising the equipment for the antibody and synthetic biology markets. Longer-term we see an opportunity for the technology to be used in cell therapy application which could markedly expand its end market potential.
Cloudera sells software which helps businesses store, manage and analyse their increasingly large and complex datasets. Over a year ago Cloudera merged with its only direct competitor, leaving the combined entity in a much stronger position. Product innovation has meaningfully accelerated since then and the company launched a range of new offerings which allow customers to manage, analyse and interface with data across any environment (on premise or in the cloud, public or private) with a single security and governance framework that persists across the entire environment. The ease of use of the updated software and the operational and economic benefits combine into an interesting value proposition for both existing and new customers.
LivePerson is a software business focused on messaging-based communication between businesses and their customers. Asynchronous messaging is emerging as the preferred communication method for many consumers and is enabling businesses to increasingly move their customer service function away from inefficient and costly call centres. Through offering a high degree of functionality and interoperability with other systems, alongside the inherent simplicity of short form communication, LivePerson has an interesting opportunity to use Machine Learning to try and automate a significant portion of customer-initiated messaging communications. This should drive further efficiency gains for its customers and increasingly opens opportunities for messaging to move closer to the transaction and not just being a customer service tool.
American Superconductor specialises in the design and manufacture of power systems and superconducting wire. Whilst the company has had mixed fortunes operating in the wind turbine industry over the past decade, consistent investment in R&D has laid the ground for sizeable new opportunities to emerge in naval power systems and renewable grid infrastructure.
Everbridge is a software company that helps its customers to automate their responses to critical events in order to keep their employees and assets safe plus minimise disruption. The company’s early focus was on population alerting in critical events such a weather emergency or an earthquake. It has capitalised on its success in this area through broadening its offering and building deeper data links into customers. As such the company now offers a suite of tools that help an organisation understand critical situational awareness across both its people, facilities, inventory, supply chain and IT operations. With many businesses and institutions placing greater strategic emphasis on operational resilience we think Everbridge is uniquely positioned and that its offering will increasingly be viewed as essential.
Epic Games, under the leadership of founder Tim Sweeney, has adapted to and often driven important games industry shifts that have occurred since the business was founded in the 1990s. It is the studio behind Fortnite and as the developer of the Unreal Engine, the industry’s largest third party game engine, it offers the tool set that enables more and higher quality games to be made. In addition, Epic Store is changing how consumers buy games and offers better incentives to developers. Each of these businesses offer great investment opportunities in their own right, but together they may be the foundations upon which large changes in video game consumption, development and distribution are built.
We are excited about these additions to the portfolio and look forward to observing how these companies evolve over the coming years.”
EWI : Edinburgh Worldwide NAV soars