Is a 49% share price discount a bargain or a deterrent? Augmentum Fintech (AUGM) made some inroads arguing the former today (Tuesday) as its shares gained 3p, or 3.7%, to 84.8p following encouraging half-year results.
They went on to stand at 89.1p on Friday, up 9% on the week, reducing the discount to 44% after the company, which invests in private financial services companies in the UK and Europe, caught investors’ attention saying its £147m market value at 30 September was exceeded by the valuation of its top four positions plus £22.4m of cash.
In for free
In other words, below rapidly growing banks Tide, Zopa, iwoca and gold-buoyed BullionVault, the remaining 23 companies in the portfolio were in for free at the current share price, despite them accounting for £125m of the investment trust’s net asset value of £282.3m.
Chair William Reeve said fintech remained an exciting place. The US flotation in September of cryptocurrency exchange Gemini (GEMI) held out the prospect of more exits to come that could crystallise hidden value in the portfolio.
It could see the fund cash in its 3.4% holding in Gemini plus recoup its original investment from 2021 when a six-month lock-in expires. That would give it fresh funds for new investments as well as share buybacks, of which it made none in the half year, despite the merit in repurchasing them when they are so cheap, having received less than £1m from realisations in the half year.
It did make £5.8m of investments, however, the bulk of which was £4.5m in a new position in RetailBook, an investment platform linking private investors to corporate fund raisings.
Portfolio progress
Reeve painted a divergent picture of the company. At a portfolio level, the update was strong with overall revenues from companies advancing 23% from £1bn to £1.2bn with profits in the six months to 30 September swelling to £103m from £6.5m a year ago.
However, the shares remained “stuck in the doldrums”, along with much of the closed-end fund sector, at an “unacceptable” discount to NAV that represented just 2.9 times the company’s £50m share of its companies’ revenues, Reeve said.
This failed to reflect the “opportunity, revenue growth and increasing profitability” of the portfolio run by chief executive Tim Levene and chief operating officer Richard Matthews, he added.
Valuation wins and misses
Despite the underlying progress, the portfolio’s net asset value (NAV) dipped £3.1m from £285.4m at 31 March with NAV per share after performance fee slipping 2p from 161.5p to 159.5p.
While the portfolio’s strong operating performance added £13.6m and the read-across from the rebound in public markets contributed a £22.2m increase, these were offset by £30.1m in valuation reductions at several holdings plus the provision for £15.2m in performance fees. This is only paid when the company has realised an aggregate 10% hurdle return in each basket of its investments.
Of the write-downs, the biggest was at payments platform Volt, where Augmentum reduced the valuation of its investment by £5m, or a quarter, to £15m following disappointing growth that led to a 25% cost cutting and a “streamlining” of its London-based team. Augmentum has invested £9.8m in the company since 2020.
“The path to success does not always run straight in venture investing, but prudence should not be confused with permanent impairment,” said Augmentum in reference to the valuation changes.
That holds out some hope for a recovery in Augmentum shares which have lost 43% in the hostile market conditions of the past five years despite NAV growing almost £100m from £183m in March 2021.
Levene said the flotations in the US of big fintechs Chime, Klarna, Circle and eToro had been partly echoed in the UK by the £1.9bn debut of Shawbrook bank in October.
“We believe this trend will only increase through 2026 and 2027 and we are optimistic that many of the companies in the portfolio are well positioned to capitalise on this newly re-opened exit market,” he said.
