Positive return for Augmentum Fintech despite macro challenges

Augmentum Fintech (AUGM) announced its annual results for the year ended 31 March 2024. The company saw a NAV total return of 5.4% which was driven by net investment return for the year and impact of share buybacks. The share price total return was up 3.6%.  The company noted that several of its portfolio companies posted meaningful profits this year and attracted substantial growth capital of over £150m during the period. It also noted that the operational performance of the vast majority of the companies in the portfolio has continued to be strong, with average revenue growth of 65% across the top 10 holdings in the last 12 months.

Portfolio highlights for the year included:

• The valuation of the top three positions (Tide, Zopa Bank and Grover) plus a strong cash position, was just below Augmentum’s £170m market capitalisation at year end. These three companies have grown revenues by an average of over 1,300% since initial investment and are either profitable or expected to reach profitability without further funding.
• Top 10 holdings, which represent 81% of portfolio value (31 March 2023: 78%) grew revenue at an average of 65% year-on-year (31 March 2023: 117%) and are cash generative (five positions) or have an average of 203 months cash runway.
• Cushon’s majority shareholding acquisition by NatWest Group completed during the period, and returned £22.8m to the company, delivering a return of 2.1x multiple on invested capital and an IRR of 62%.
• Post year end: exit from Onfido through the acquisition by Entrust, delivering a return of 1.3x on invested capital and an IRR of 5.8%.
• There have now been six exits from the portfolio since inception all at or above their last reported value, which have realised a cumulative £89.6m in proceeds – £55.9m over their original cost (c2.7x invested capital).
• IRR of 16% on invested capital since inception (31 March 2023: 18.5%).

Commenting on the results and the outlook for the company, chairman Neil England noted:

“Interest rates remain stubbornly high for now, but UK and global inflation numbers are improving which suggests a more positive medium-term outlook for growth companies. As I write, early-stage growth portfolios remain out of favour, but our portfolio manager has proved its model, well-illustrated by the returns produced by our six realisations to date. Additionally, our largest investments are performing very well.

“The underlying need to digitalise and transform financial services remains. The opportunity is undiminished as the traditional operators continue to dominate, despite inroads made by some stellar fintech businesses with less costly, and in many cases more secure, business models. Penetration is still only c.5% across the industry although adoption of consumer focused fintech by younger demographics is markedly higher.

“We maintained our investment discipline over the last year and, with our strong cash reserves (£44.8 million at 31 May 2024), we are well placed both to take advantage of new opportunities and to reinforce our appeal as a supportive investor. We have a healthy pipeline of opportunities under consideration.

“Your board believes that the company will see a closing of the discount at which its shares trade in due course and, with the underlying growth of the portfolio generally being very strong, expects that our patient shareholders will be well rewarded in time.”

AUGM: Positive return for Augmentum Fintech despite macro challenges