Chrysalis (CHRY) has jumped to a three-year high after the growth capital fund underlined the strength of its recovery with a 13.7% second quarter increase driven by a dramatic 42% hike in the value of Starling bank.
Shares in the £582m investment company, which invests in companies preparing to float on the stock market, leaped 10%, or 11.4p, to 123.4p on news of the double-digit rise in the portfolio’s net asset value after debts.
The trading update showed NAV per share rose 20.95p to 173.57p in the three months to 30 June.
This slightly widens the discount, or gap between share price and NAV, to 29%, although this has narrowed sharply from a one-year average 37% as the market has warmed to the board’s efforts to restore shareholder value after a painful slump in 2022 and 2023.
Gains in the value of the portfolio companies would have delivered a 21.1p NAV per share increase but currency movements knocked off 1.91p per share, although this was more than offset by a gain of 2.59p per share from buying back another £18.3m of its cheap shares.
Starling now accounts for 42.3% of the portfolio after the holding rose in value from £271m to £384.7m in the quarter. Annual results to 31 March had shown a 37% post-tax return on capital which fund managers Richard Watts and Nick Williamson said compared “very favourably” to traditional UK banks.
They said: “The material increase in the valuation of Starling was a function of both the progress made in the core UK bank, but also the inclusion for the first time of a valuation for Engine”, its banking-as-a-service technology platform which is winning new customers and attracting a high valuation.
Klarna, the buy-now-pay-later credit provider whose valuation slump was at the heart of Chrysalis’ difficulties in 2022, remains the second biggest holding at a steady 15% of assets. The value of the stake rose to £136.9m from £125.7m on 31 March.
Our view
James Carthew, head of investment company research at QuotedData, said: “Shareholders (including AVI Global Trust) will be happy to see today’s NAV uplift. In addition, the buyback programme seems to be helping to narrow the discount, although there is more to go for on that front. A big jump in the value of Starling and a smaller increase in the value of Klarna mask falls in the valuations of Brandtech, Deep Instinct, Secret Escapes. With Chrysalis’s top three holdings now accounting for 71% of NAV, a disposal of any one of them would transform CHRY’s already cash-rich balance sheet. We feel that shareholders and the managers need clarity on the trust’s future, and await the outcome of the shareholder consultation with keen interest.”
