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Chrysalis Investments off to a positive start to the year

SIGT : Seneca Global Income & Growth - Mind the (inflation) gap!

Chrysalis Investments announced a quarterly NAV update and a trading update for 31 March 2023. The unaudited net asset value per ordinary share was 130.02 pence. March’s NAV represents a 1.76 pence per share (1.4%) increase since 31 December 2022. Movements in fair values of the portfolio accounted for approximately 3.1 pence per share, with foreign exchange generating an adverse movement of approximately 1.2 pence per share.

Portfolio activity for the quarter was relatively muted as the investment adviser remains focused on the current portfolio and has not been actively pursuing new investment opportunities, albeit the origination process continues to generate leads. Over the period, the following transactions occurred:

In February 2023, the company invested €4 million in wefox in an extension of its US$400 million Series D funding round, which had valued wefox at US$4.5 billion post money.

  • As announced in February 2023, the company purchased £20 million of equity in Starling via a secondary market transaction led by an existing, third-party shareholder.
  • In November 2022, the investment adviser set out an expected primary portfolio funding requirement of approximately £20 million. Being secondary, the Starling transaction did not form part of this capital requirement.

Commenting on the quarter, Richard Watts and Nick Williamson, the co-portfolio managers commented that:

“We remain fully confident in our diverse portfolio of well-funded, attractively valued and fast-growing assets, and in the significant opportunity that they represent for our shareholders.

“It is encouraging to see a modest increase in the company’s NAV over the recent quarter. Many listed peers have fared favourably since the turn of the year, and this is reflected in the valuation uplifts within the Chrysalis portfolio.

“We have worked hard alongside our portfolio companies to address their ability to navigate the retrenchment in growth valuations seen over the last 15 months, and the subsequent decrease in investor appetite to consider growth stocks. Major progress has been made in this regard, with companies such as Klarna altering investment plans, raising capital and setting out a path to profitability. As a result, we have seen a significant improvement in the funding profile of Chrysalis, with 74% of the portfolio either profitable or funded to profitability as of March 2023, up from 42% a year earlier (and versus 67% as of the Capital Markets Day in November 2022).

“Despite the focus on profitability the weighted average revenue growth rate of the portfolio to 31 March 2023 remained robust at approximately 50%.”

The managers also commented on the outlook:

“The Investment Advisor has spent a considerable amount of time over the past twelve months working with portfolio companies to enhance their profitability, and where necessary, to raise capital. As a result of this, the investment adviser believes the “funding risk” in the portfolio has been substantially reduced.

“As of 31 March 2022, approximately 42% of the portfolio was profitable, with none of the remaining 58% funded to profitability. As of 31 March 2023, 38% of the portfolio was profitable (the composition of this cohort being affected by changes in asset weightings, as well as the realisation of certain profitable positions, such as THG), but of the remainder, 36% was funded to profitability.

“This has increased the total portfolio weighting of those companies that were either profitable or funded to profitability from 42% to 74% over the course of the last twelve months. The investment adviser continues to work with the remaining portfolio companies that fall outside this group and has good visibility over funding options and cash runways for a number of these holdings.

“As a result of this work, the investment adviser believes the company has a portfolio of assets that are growing strongly, are well-funded and attractively valued versus listed peers.

“The IPO market, at least in the UK, remains very subdued: over the year to March 2023, only 27 IPOs have occurred on the LSE main market and AIM, and the market is now entering its sixth successive quarter of low issuance. It is easy to extrapolate past events into the future, but this lack of activity is now almost on a par with the hiatus post the great financial crisis, when economic conditions were much less certain. The company has a number of later-stage assets that the investment adviser believes are capable of floating, and a successful exit, whether an IPO or trade sale, could materially enhance the liquidity profile of the company and provide a mark-to-market underpin for that holding, and by implication, the company’s wider valuation approach.”

CHRY : Chrysalis Investments off to a positive start to the year

 

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