Optimistic outlook for Edinburgh Worldwide as market shows signs of improvement

Edinburgh Worldwide (EDIN) has announced its interim results for the six months to April 20 2024. The company’s NAV increased by 6.4% while the comparative index increased by 15.0%. The share price increased by 13.6% leading to a narrowing of the discount which was 11.49% at the time of publishing. The largest positive contributors to performance over the six months were Axon Enterprises, the dominant provider of Taser devices, body-worn cameras and digital solutions to law enforcement agencies, and AeroVironment, the leading manufacturer of small-scale surveillance and tactical drones for the military. The most significant detractors to performance in the period were the technology and grocery business Ocado, drug developer Alnylam Pharmaceuticals and DNA sequencer Oxford Nanopore. During the period, the company also bought back 4.05m shares into treasury.

Commenting on the performance,  chair Jonathan Simpson-Dent noted that whilst the last few years have been challenging for shareholders, the board is encouraged by a growing conviction that market fundamentals will reassert themselves. Although there has been some upward movement in the company’s NAV and narrowing of the discount over the period, he believes this is not yet benefiting the share price as much as the board would like.

Promisingly however, he adds:

“The recent uptick in M&A activity has, however, crystalised notable gains on two stocks in the portfolio. In April, Shockwave Medical accepted a recommended offer from Johnson & Johnson at over nine times Edinburgh Worldwide’s entry price, and Hashicorp, a cloud-based software business, recently accepted an offer from IBM at a 28% premium to the price paid twelve months earlier. Going forward, further latent value could be recognised across the extensive potential within Edinburgh Worldwide’s unique portfolio, including its private company holdings (27.8% of total assets), many of which have successfully raised capital in the period to support their growth objectives.

“In addition and with a focus on rigour of execution, the portfolio managers have exited nine investments in the period, crystallising losses of £25m, in order to reallocate capital and rebalance the portfolio. The portfolio managers are constantly testing the portfolio in aggregate, its construction, the investment approach, strategy, execution and delivery against stretching objectives, refining the processes as required.

“In the meantime, the company is taking an active approach to managing the discount, buying back shares while the discount is substantial in absolute terms and relative to its peers. In the six months to end April, the company bought back 4.1m shares, 1% of its issued share capital as at the start of the period, through 92 transactions for a total consideration of £5.9m. There are currently 22.7m shares held in treasury. Invested equity gearing is currently 14% of shareholders’ funds.

“During this volatile market, we are continuing to ensure that the board has a range of expertise investing in, and oversight of, entrepreneurial companies. I am also committed to increasing board engagement with shareholders as we manage through this environment to deliver Edinburgh Worldwide’s significant potential and our long-term objectives.”

EDIN : Optimistic outlook for Edinburgh Worldwide as market shows signs of improvement