Chrysalis (CHRY) has dismissed the relevance of a cut-price share sale by former Starling bank boss Anne Boden, adding £47.9m to the valuation of the digital challenger that now accounts for nearly two thirds of the portfolio in wind-down.
Last month Sky News and the Sunday Times said that Starling founder Boden, who left the business two years ago, had sold her remaining 2.7% stake. Boden, who is establishing an AI venture, was said to have disposed of her holding at a £1.7bn valuation, netting her around £45m, Sky reported.
That was below the £4bn valuation Starling had sought last year during sales by some shareholders.
“While the company cannot comment on the specifics of this private transaction,” it said in reference to Boden, “the board and valuation committed have considered its nature and do not believe that it impacts the company’s valuation.”
In a trading statement for the three months to 30 September, Chrysalis said the fair value of its holding in Starling had risen by £47.9m to £402.9m, accounting for 65.6% of net asset value (NAV) of £630.5m.
This was after Chrysalis commissioned an additional valuation report to complement the existing valuation by S&P Markit analysis. This had “crossed over with the S&P Markit analysis and resulted in a 5-6 gross revenue multiple.”
Analysts at Jefferies said this implied a £3.4bn valuation for Starling and that it was “reassuring” to see a write-up due to an independent valuation report, “although, in our view, the path to liquidity on the investment is still unclear,” said Matthew Hose and Fiona Huang.
With Starling investing to restart customer and deposit growth following its £29m FCA fine for failings in financial crime controls, Chrysalis said the bank enjoyed a funding cost advantage over most of the sector that “should underpin profit growth into 2027.”
Annual results in May showed Starling’s pre-tax profits fell to £217.1m from £223.4m on revenues down at £887.3m from £940m. However, since then the bank has launched “Smart Tools” within its AI-powered Starling Assistant, a Student Accent and a “market-leading” Easy Saver rate for new customers. Meanwhile, Engine, its software as a service banking platform, had launched Scotiabank’s Tangerine bank in Canada less than a year after signing a contract.
Starling was the only significant gain in the eight-strong portfolio with its 22% weighting to Smart Pension held at £136.2m amid reports that the Barclays-backed workplace pension provider is in talks to sell its master trust business to rival The People’s Pension for £800m-£900m.
Smaller positions in consultancy Brandtech, insurer wefox and travel company Secret Escapes were cut by £18.4m with a £17m loss crystallised by the £39.9m disposal of Klarna, the Swedish credit provider that was once Chrysalis’ biggest holding.
NAV per share rose 2.45p, or 1.9%, to 133.54p. Starling provided most of the underlying 2.62p gain in fair value, although last month’s £25m return of capital funded by the exit from Klarna also helped a little.
Chair Andrew Haining said the board was focused on maximising value for shareholders through the three-year wind-down of the growth capital fund’s investments begun in February.
“We are particularly encouraged by the alignment we have seen among key shareholders in our two largest investment and remain confident that there are viable pathways to liquidity within the realisation period. The company is well capitalised and is not a forced seller of assets,” he said.
Chrysalis is now a self-managed investment company following the termination of the contract with former fund managers Richard Watts and Nick Williamson. Chrysalis director Sam Dobbyn is now in charge of the portfolio, assisted by Tim Brenton, who has joined as a consultant after a decade with Rothschilds bank. Bekki Whiting and James Simpson, colleagues of the former fund managers, have moved across to provide financial, operational and legal support.
Chrysalis shares rallied 3.2%, or 2p, to 65p, valuing the company at £300m. They have fallen 45% this year and stand 51% below the new NAV. They peaked at 267p in September 2021 before rising inflation and interest rates unwound their surge during the pandemic.
Our view
Matthew Read, senior analyst at QuotedData, said: “Chrysalis’s modest NAV increase masks some significant movements within the portfolio. The £47.9m uplift in Starling’s valuation is encouraging, particularly given the progress being made by its Engine banking technology platform, as is the additional independent work the board has commissioned to support Starling’s valuation. This comes at a time when the trust is increasingly dependent on this one investment, which now accounts for almost two-thirds of NAV. As we have previously highlighted, the £39.9m realised from the sale of Klarna, against its £56.9m June valuation, was disappointing and further write-downs at wefox, Brandtech and Secret Escapes underline the challenges facing the new management team.
“With Starling and Smart Pension now representing almost 88% of NAV, the success of the wind-down rests overwhelmingly on securing attractive exits from these two businesses. The board believes there are viable routes to liquidity and that CHRY has sufficient cash to avoid becoming a forced seller. However, shareholders will be hoping that this translates into better outcomes than was achieved with the Klarna disposal.”
