Chrysalis Investments says its 31 December 2022 NAV was 128.26p, down 19.53p or 13.2% since 30 September 2022. Revaluations of four comanies took off 11.4p, foreign exchange movements accounted for a further 3.3p of the fall.
There was limited portfolio activity over the quarter (several companies within the portfolio had raised fresh capital over the first half of 2022). Chrysalis sold about £5.9m of Wise shares in October and announced in November that it had sold its entire stake in Revolution Beauty for about £5m in an off-market transaction (as its shares were suspended at that point).
The adviser reckons there is still about a £20m funding requirement for the companies in the portfolio. That is balanced against net cash of £66m and a position in Wise worth £12m as at 30 January 2023. By the investment adviser’s reckoning, 80% of portfolio companies are either profitable, funded to profitability, or with a two-year cash runway. It believes that the company remains in a strong liquidity position to enable it to fund likely capital calls, while retaining an adequate buffer with which to deal with any unforeseen events.
Portfolio News
Wefox
wefox has had a very strong last twelve months. The company generated approximately €600m of revenue in FY22 and should be profitable within the next twelve months; this would make wefox one of the largest and most profitable Insurtech assets globally. The company has also matured from a governance perspective and recently announced the appointment of Helen Heslop to the board as chair of the audit committee, and Laura Eschricht as chief marketing officer; this follows several other senior hires across the group over the course of 2022.
In October, wefox also announced it would continue its investment in artificial intelligence (AI) and innovation with a new technology hub opening in Milan, Italy. Wefox already has technology hubs in Paris, France and Barcelona, Spain and utilises AI to increase broker productivity and reduce fraud. In Milan, wefox will invent and build new technology to accelerate its embedded insurance products through its affinity partnerships.
Brandtech
Brandtech continues to grow strongly driven by best-in-class organic growth and selective M&A. The company recently disclosed that it has entered into exclusive negotiations with Fimalac to potentially acquire global digital marketing company, Jellyfish. Jellyfish is headquartered in the UK but has 40 global offices with 2,250 employees. Jellyfish describes itself as a digital partner for some of the world’s leading brands such as Aviva, Duracell, Google and Toyota and has generated a compound annual growth rate of 45% since 2013.
Starling
In January 2023, Anne Boden – Starling CEO – noted that for the month of December 2022 the company generated annualised revenue of nearly £600m and PBT of over £250m, with a deposit book of £10.7bn. This compares with annualised figures of £331.2m in revenues and PBT of £92m, both as of June 2022.
Klarna
In November, Klarna announced its 3Q 2022 results. Gross merchandise volume (GMV) grew +22% organically over the first nine months of 2022 to $60.2m, with the US growing at +92%. The investment adviser views this as a strong result given a decline in global e-commerce sales and is despite the company adopting a more cautious underwriting approach earlier in the year. Impairment rates fell as a percentage of GMV to 0.7% in 3Q22 from the prior quarter, which drove a material improvement in operating losses, which fell $169m in 3Q22 on a sequential basis. As a result of these encouraging trends, Klarna stated that it expects to hit run rate profitability during 2H23.
Klarna also unveiled significant improvements in its mobile app which will provide an even better shopping experience for its 150 million customers globally. Klarna has launched an intelligent, unbiased in-app search tool in the US, UK, and the Nordics that saves consumers time and money by comparing prices across thousands of retailers, offering a credible alternative to the established tech giants. Klarna now also automatically adds available coupons at checkout in the US and UK with further markets to follow, making money-saving effortless while allowing consumers to collect rewards through its in-app digital wallet for loyalty cards.
Featurespace
Over the quarter, Featurespace continued to win awards for its innovative product, including its partnership with TSYS winning the “Best Use of Payments Data or AI in Financial Services” at the PAY360 awards.
Looking forward
The investment adviser notes that certain stock markets, including “tech-heavy” ones such as the NASDAQ 100, are beginning to show some signs of stability. It feels that a recovery in market sentiment and market price levels is likely to have two main effects:
- It would support portfolio company valuations; and
- It could lead to the IPO market reopening.
The IPO market has endured four quarters of low issuance over 2022, on the back of a reasonably strong year – relative to recent history – in 2021. While there is no guarantee that any of the company’s portfolio companies would look to IPO if there was an opportunity in 2023, it does potentially open this possibility for some of the later stage assets.
An IPO – which the investment adviser views as an important “exit” route for the company – in the portfolio would materially boost the company’s liquidity position and provide a clear underpin to valuation for the pertinent company.
CHRY : Chrysalis NAV falls but adviser hopeful for better IPO market