by Dave Baxter, Investors Chronicle, March 8, 2024:
With its latest trading update unveiling a fifth straight annual loss, unquoted buy now, pay later business Klarna embodies some of the problems facing racy growth companies in recent times. Once seen as a promising name, the lender has struggled in the face of rising rates and cooling investor sentiment, as evidenced by a hefty valuation writedown in 2022. But in other ways it offers hope for backers – including those investment trusts that have banked on unlisted companies with racy narratives.
With markets showing some life again, Klarna has become the subject of initial public offering (IPO) speculation, its chief executive saying a 2024 listing was “not impossible”. The company is reportedly in talks over whether to use a dual-class share structure, so a listing is more than just on the cards. The valuation is expected to be around $20bn (£16bn).
That could prove important for shareholders in one investment trust that has proved turbulent in recent history: Chrysalis Investments (CHRY), which backs later-stage private companies, had an 11 per cent position in the company at the start of this year. The fund has sunk in the face of higher rates, with shareholders taking a paper loss of 60 per cent in the past three years. The shares recently traded on a discount of more than 40 per cent to portfolio net asset value (NAV)..
IPOs can certainly offer trusts with portfolios of unlisted or illiquid assets a potential NAV boost, while unlocking capital for measures such as share buybacks. And with conditions improving, some other trusts with a focus on unlisted companies could be set for a boost.
Which names might benefit? James Carthew, head of investment company research at QuotedData, said that some trusts managed by Baillie Gifford were “bound to have some” IPOs soon. Payment processing company Stripe, a small position for Scottish Mortgage (SMT), has been discussed as a potential candidate, for one. “Brandtech, which is in SMT and CHRY, should be closer to an exit,” he said.
A more prominent name for Baillie Gifford vehicles would be Elon Musk’s SpaceX, a 4.3 per cent position in Scottish Mortgage and a 10.8 per cent for racy global small-cap fund Edinburgh Worldwide (EWI). Musk has expressed frustration with the public market requirements for Tesla (US:TSLA), but its listing has made him one of the richest people in the world.
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