Schroder British Opportunities says that over the year ended 31 March 2023 its NAV increased by 3.1% to 107.32p. There is no dividend. However, the share price suffered a decline of -18.5% as the discount widened from ‑19.3% to -36.2%, which the chairman describes as frustrating. 1.1m shares were repurchased and are being held in treasury.
The company had £7.8m in cash as at 31 March 2023.
The chairman notes that in certain areas of the private equity market there has been significant downwards revaluation, although this has generally not been the case in their part of the market. He stresses that Schroder British Opportunities is not a venture investor, but rather focuses on the growth and the buyout sector. Of the portfolio of nine private businesses, diversified across sectors, eight are either profitable or on a clear path to profitability [which sounds a lot like Chrysalis which trades on a much wider discount]. These companies have an average of about 40% revenue growth and good margins. This private portfolio contributed 10% to the NAV during the period under review. However, the public holdings fell slightly in value, taking 5.9% off the NAV, as UK small and mid-cap stocks were badly affected by the macroeconomic factors affecting the market.
New co-managers
The portfolio has been co-managed by Rory Bateman (Schroders’ co-head of investment and head of equities), and Tim Creed (Schroders Capital’s head of private equity investments). Uzo Ekwue and Peraveenan (‘Pav’) Sriharan will join them as additional co-managers.
Uzo is a fund manager within Schroders’ UK equity team, where she manages assets across the market cap spectrum. She joined Schroders in November 2020 and has been working closely alongside Rory since the company’s inception. Pav covers Schroders Capital’s private equity investment activities in Europe and forms part of the technology and consumer sector groups. He started at Schroders in September 2012 and joined the private equity team in January 2022, and has been working closely with Tim on the company’s private investments since then.
Extract from the managers’ statement
A key contributor over the year was Mintec, the world’s leading independent provider of global commodity price data & market intelligence, which was added to the portfolio in the first half of 2022 and has seen its fair value almost double since. Over the period, the company acquired French business CommoPrices, an independent provider of commodity price data and analysis, and more recently Agribriefing, which comprises multiple global brands specialising in agri-food supply chains through its products and proprietary data. These acquisitions complemented the company’s investment in Kairos, a provider of commodity market intelligence and commodity risk management, bought in 2021. These acquisitions have established Mintec as the largest agri-food-focused price reporting agency and global information provider with a unique portfolio of feed-to-food commodity prices, forecasts, cost-modelling tools and fundamental market data, serving over 5,000 customers in 50 countries.
Cera Care, Europe’s largest provider of digital-first home healthcare, was a strong contributor over the year following a further funding round to accelerate its growth in August 2022, in which the Company made an additional investment. We were pleased to have been able to participate in Cera’s latest financing and help them empower those in the care sector. Ageing populations, post-pandemic recovery and major staff shortages have created a series of issues facing healthcare providers and governments. Cera’s proposition is positioned to address these challenges. More recently, the company has taken further steps to strengthen its offering through the use of artificial intelligence, launching “Cera Brain”, a platform that helps to automate and power Cera’s care delivery operations. This is discussed in further detail in the top 10 holdings section below.
The Company’s holding in EasyPark, the parking tech company that helps drivers to find, manage and pay for both parking and electric vehicle charging, saw its valuation increase over the period. The company continues to grow and strengthen its position as the parking tech company with the widest coverage in the world. In 2022, EasyPark grew both in new and existing markets, adding new cities such as Paris and Boston, as well as new countries, such as Slovakia. From an operational perspective, the company continues to deliver very strong transaction and monthly active user volumes.
A further contributor was global designer, manufacturer, distributor and service provider of purified drinking water dispensers, Waterlogic, which completed its merger with Culligan International – the innovative brand in consumer-focused, sustainable water solutions and services. The merger led to the Company receiving £2.4m in sales proceeds, which is a key milestone considering the Company only launched in December 2020. As at 31 March 2022, the Company’s holding in Waterlogic was valued at £6.0m. As at 31 March 2023, and following the £2.4m distribution, the holding was valued at £5.1m.
The Company’s holding in CFC, one of the world’s most successful technology-led insurance platforms and a global leader in the cyber market, was another strong contributor over the year. CFC operates a unique model in the insurance industry, and benefits from a 20-year track record of innovative insurance products. Cyber risk is a fast-growing market and CFC are well positioned from an insurance perspective in this space to increase market share.
On the more challenging side, Graphcore, which was added to the portfolio towards the end of 2020 as part of a $222m Series E funding round alongside Ontario Teachers’ Pension Plan, Fidelity International and existing Graphcore investors, has been revalued downwards over the year. Graphcore, which has developed a next generation processor for machine learning and AI applications, is currently facing a challenging market environment given the long sales cycles that surround such revolutionary technologies. Additionally, the company has not been immune to the US Department of Commerce’s sweeping set of export controls to restrict China from certain semi-conductor chips and chip-making equipment announced in early October 2022. The scale of the artificial intelligence and machine learning opportunity longer term remains immense and Graphcore’s technology continues to set new benchmarks in performance. The situation is developing, and we continue to monitor it closely.
As mentioned in the market section above, UK small and mid-caps in the public equity market fared relatively poorly over the period and, given the focus of the portfolio’s public allocation of investing in small and medium-sized businesses listed in the UK, performance was challenging for this part of the portfolio in absolute terms. In particular, the share price performance of holdings in National Express, GB Group, Ascential and Genuit weighed on returns. However, there were bright spots, with the Company benefitting from M&A activity in the market, as holdings in Euromoney, Ideagen and EMIS Group were all subject to takeover bids over the period, with all three positions subsequently exited. Meanwhile, shares in Volution Group, a leading supplier of ventilation products, performed well. In March 2023, the company reported a strong set of interim results, with half year revenues and adjusted operating profits up 8.5% and 7.1% respectively year-on-year, following on from strong annual results published in October 2022.
SBO : Schroder British Opportunities ekes out NAV gains