REG - Blue Star Capital - Trading Update and Investment Portfolio Review

Blue Star CapitalAnnouncement

28/09/2022 07:00

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RNS Number : 9157A  Blue Star Capital plc  28 September 2022

 

 28 September 2022

 

Blue Star Capital plc

 

("Blue Star" or the "Company")

 

Trading Update and Investment Portfolio Review

Change of Broker

 

Following the recent appointment of Tony Fabrizi as Executive Chairman, the
board has undertaken a review of the Company's investments and operating
structure and set out below their key findings and updated strategy moving
forward.

 

 

Esports portfolio

 

The Company made initial investments in November 2019 of £900,00 in aggregate
into a portfolio of six early-stage companies, investing approximately
£150,000 into each business. At the time of making this investment the Board
decided that, due to the early-stage nature of the investments and sector, a
portfolio approach was most likely to prove successful. Since making this
initial investment, the Company has made two smaller investments of
approximately £115,000 in September 2020 into a new esports business called
Formation Esports Investment and approximately £60,000 in September 2021 into
Paidia Esports Inc. The Board is pleased to report that the overall
performance of the esports portfolio has been strong.

 

Of the eight esports investments, the best performing is Dynasty Gaming &
Media PTE. Ltd ("Dynasty"). The Board notes that the investment into Dynasty
has been very successful and fully justifies the decision to pursue a
portfolio approach. Unlike the Company's other esports investments, Dynasty is
a pure B2B infrastructure business, having developed a powerful gaming and
media platform ecosystem for mass market deployment. The Board believes that
Dynasty's success to date in securing large contracts clearly demonstrates the
inherent value in this business.

 

Dynasty's partners include:

·    Saudi Telecom Corporation, the largest telecom carrier in the Middle
East with which it signed a 2-year SaaS contract in October 2020.

·    Maxis Bhd., Malaysia's leading telecoms operator. Initial traction
has far exceeded expectations with increasing functionality being continually
added. Maxis Bhd. has approximately 11 million customers.

·    New Zealand's largest telecommunications and digital services
company, which enjoys a dominant market position and premium brand presence.
The platform is scheduled to launch in November 2022.

·    Lets Play Live Ltd - Australia's largest tournament organiser and
gaming content creators. Scheduled platform launch January 2023.

 

In addition, the Board understands that a number of other multi-year
contracts, which are subject to confidentiality, have been signed.

 

In terms of new business, Dynasty has a large number of contract discussions
ongoing with large global telecoms operators and tech businesses. The scale of
these contracts is expected to be significantly larger than the company's
existing partnership agreements and, if secured, will position Dynasty as the
global leader in B2B white label gaming platforms.

As previously highlighted, Dynasty's business model has evolved and all new
partnership agreements contain both fixed licence fees and managed services
revenue share. While Dynasty's initial commercial model was based on
collecting monthly licence fees over a minimum 24-month contract, moving
forward, all agreements will see Dynasty supporting its partners with a
managed service solution. Dynasty provides dedicated in-country resources,
working exclusively with their partners in all areas of engagement and
monetisation, to help maximise commercial outcomes. Under the new hybrid
model, Dynasty enjoys a significant portion of all platform revenue generated,
in addition to licence fees.

Since first investing in Dynasty, the Company has maintained its shareholding
at approximately 13.7 per cent, investing in total £895,000. The last
external valuation of Dynasty took place in April 2021 when it raised
USD$5million on a post money valuation of USD$50million. Since then, Dynasty
has announced a number of new contracts, developed a new, more attractive
business model and confirmed significant interest from potential partners and
strategic investors.

 

The Company is currently carrying the investment in Dynasty at the last
external valuation of approximately £4.6million. For the reasons highlighted
above, it is the Board's belief that Dynasty's valuation should have increased
significantly since the company's last fundraise and should be worth
considerably more than the current carrying value. Furthermore, the recent
strengthening of the US dollar against sterling means the current carrying
value of the Dynasty shareholding is over £6m based on current exchange
rates.

 

The second significant esports investments is in Guild Esports plc ("Guild")
in which the Company has invested a total amount of £705,000. Guild initially
performed strongly and listed on the Standard Segment of the Main Market of
the London Stock Exchange in October 2020 at 8p per share valuing the business
at £41.2million. At that time the Guild investment was showing an unrealised
gain to Blue Star of approximately £1.75million. Since its listing, Guild's
share price performance has been disappointing and is currently standing at
around 2.7p. In order to raise working capital, the Company has recently
reduced its shareholding in Guild to approximately 22million shares,
representing 4.3 per cent of Guild. At this time, based on the current share
price and proceeds from disposals, the Company is around break-even on its
Guild investment. However, the Board is pleased to note the positive
announcements from Guild in the last few days and its share price
strengthening and remain hopeful that Guild's recent stronger performance will
continue.

 

The remaining esports investments are carried at cost and, in light of little
news, for prudence, the Company will be looking into the potential write-off
of most of the smaller esports investments within the next financial
statements to 30 September 2022.

 

In summary, the existing esports portfolio has a combined cost to date of
£2.375million and taking the proceeds raised from selling approximately 1.5
per cent of the Guild position and the current carrying values of the
remaining Guild stake of approximately £600,000 and Dynasty (applying current
exchange rates) and ignoring the remaining six other esports investments, has
a combined value of approximately £6.70million which equates to an unrealised
gain of around £4.35million.

 

 

Other Quoted investments

 

The Company's other quoted investments in NFT Investments and East Side Games
are non-core and will be sold as and when an appropriate opportunity arises.
They have a current carrying value of approximately £135,000.

 

 

Blockchain investment

 

The Company's second core investment is in SatoshiPay. This investment was
made in increments between January 2017 and July 2017 with a total amount
invested of €1.87million. Post these investments, the Company attempted to
carry out a reverse takeover of SatoshiPay at the end of 2018. This proposed
transaction was aborted due to difficult market conditions at the time. A
small convertible loan of €200,000 to SatoshiPay was converted in February
2019 taking the Company's shareholding to 27.9 per cent of SatoshiPay's issued
share capital.

 

In the last two years, SatoshiPay has made a number of fundamental changes to
its business model, most notably:

·    Changed the focus away from its micropayments business which was the
company's initial market priority. Although the technology works well, the
business was too early and the market opportunity still in its infancy.

·    In early 2020, SatoshiPay announced it was refocussing on B2B
cross-border money transfer through blockchain with the launch of DTransfer.
This was identified as a major global market opportunity which had scope for
disruption through blockchain. Since switching focus, SatoshiPay has made
solid progress in building DTransfer by signing up customers and building
partnerships.

·    While building DTransfer, it became clear that the blockchain
infrastructure required to launch Dtransfer as a complete solution still
needed refining. This encouraged SatoshiPay's management to seek out ways of
providing and supporting this infrastructure, which led to the inception of
Pendulum.

·    Pendulum's development started in the first half of 2021 as an
open-source blockchain built on the stable and existing Substrate framework.
Its objective is to establish the missing link between fiat and the DeFi
ecosystems through a network of sophisticated smart contracts. Pendulum's
Layer-1 infrastructure will connect DeFi to the foreign exchange market,
building automated market makers (AMMs) to introduce scalable liquidity pools
for fiat currencies, and create yield earning opportunities for fiat token
holders.

·    Having built the first prototype of Pendulum at the end of 2021,
which featured a bridge to Stellar and an AMM smart contract, Pendulum has
subsequently developed a fully functional testnet and prepared a launch as a
Polkadot parachain.

·    In more recent months, the Pendulum team has continued development
and achieved all of its internal milestones. In addition, recent external
achievements include securing a place on the Berkeley University blockchain
Xcelerator program and receiving a grant from the Web3 Foundation to build a
bridge (Spacewalk Bridge) between Stellar and Substrate-based parachains.

·    Most notably, a second parachain project, Amplitude, was launched by
the Pendulum team in June 2022 and was successful in winning a Kusama
parachain auction on 4 July 2022, achieving $1.2million in contributions.
Amplitude went live on 11 August 2022 and serves as a testing ground for the
future Pendulum parachain, with new features first being rolled out on
Amplitude.

·    Pendulum has so far raised $5million for its further development by
the private presale of future PEN tokens. The Board understands that Pendulum
intends to carry out a further private presale before the listing of the
token.

 

The Board notes that placing a value on SatoshiPay is highly subjective given
the early stage nature of its business interests. In looking at SatoshiPay's
valuation, the Board has taken the following key factors into account:

·    The business is, through its relationship with Pendulum, fully funded
for the next year so there is no need for any equity injection into
SatoshiPay.

·    SatoshiPay is now generating monthly revenues and was profitable in
the year ended 31 December 2021 and is expected to be profitable in 2022.

·    It has a close relationship with a number of large crypto
organisations such as Web3 Foundation, Parity and Stellar Development
Foundation and a growing reputation generally in the blockchain ecosystem.

·    It has successfully executed the first private presale for Pendulum
and secured approximately 5.5 per cent of the future PEN tokens for services
rendered.

·    If the Pendulum network can successfully connect De-Fi to the larger
foreign exchange markets, building AMMs to introduce scalable liquidity pools
for fiat currencies as well as creating yield earning opportunities for fiat
token holders, then Pendulum should be well placed within the De-Fi space, a
market which is currently estimated to be valued at $55billion in total value
locked.

·    SatoshiPay has successfully incubated the Amber AMM Project for which
it has secured 5 per cent of its future tokens. Amber is a novel AMM design
for low-risk, single-sided liquidity provision, significantly lower slippage
and fees compared to other AMM designs.

·    It is well placed to earn fees and accumulate tokens in existing and
new De-Fi projects.

·    SatoshiPay owns 100 per cent of DTransfer which remains a highly
attractive opportunity.

 

The current valuation of SatoshiPay is based on the last external fund raise
which took place in February 2019. Since then, SatoshiPay's business has
changed considerably and, in the Board's opinion, SatoshiPay's prospects,
while still difficult to accurately value, are significantly improved. Given
these factors the Board believes the current carrying valuation for SatoshiPay
of approximately £4.8million could significantly understate its current
market value.  Based on this latest valuation and the investment to date of
£1.8million, the investment in SatoshiPay is showing an unrealised gain of
approximately £3million.

 

 

Biometric business

 

Sthaler is a biometric identity and payments technology business which enables
an individual to identify themselves and pay using the unique vein patterns
within a finger. Its FinGo ID platform uses a biometric called VeinID which
instantly recognises an individual through the unique pattern of veins inside
each finger. The FinGo technology scans each person's unique vein pattern, an
internal biometric that cannot be traced or copied, making FinGo the most
secure and inclusive way to connect.

 

FinGo's technology is relevant across so many sectors and industries ranging
from payments, age verification, identity and access. Sthaler are currently
launching FinGo across a number of countries and sectors either directly or
through partners.

 

Blue Star's percentage shareholding in Sthaler was approximately 0.8% at 30
September 2021 and is valued on the basis of Sthaler's last completed
fundraise at approximately £387,000. The cost of the Sthaler investment is
£50,000, representing an unrealised gain of £337,000. While the Board
believes Sthaler is an excellent business with enormous potential, the small
size of its shareholding means the Board are treating Sthaler as non-core.

 

Conclusions based on portfolio review

 

Based on the current carrying valuations of Dynasty, SatoshiPay, Sthaler and
the market price of the quoted investments the portfolio has a current value
of approximately £11.9million which is equivalent to an estimated NAV per
share of approximately 0.24p.

 

For the reasons highlighted above, the Board believes there is significant
scope for this figure to materially increase over the next twelve to eighteen
months. Accordingly, the Board intends to focus its attention and resources on
supporting its two core investee companies and does not anticipate making any
new investments for the foreseeable future.

 

In addition, the Board intend to manage the Company with a focus on funding
the business, insofar as possible, through the sale of its existing non-core
investments.

 

The Board will cut all non-essential costs and is proposing to put in place a
share option scheme on a time and performance basis. The terms of the option
scheme will reflect the Directors belief in the inherent value of the two main
investments. Details of the scheme will be announced later this year and will
cover a maximum percentage of 5 per cent, maximum life of 3 years and proposed
exercise prices of at least 0.35p per share.

 

 

Long term strategy

 

The Board believes the two major investments have the potential to provide
significant value for shareholders and the focus will therefore be on managing
the Company to maximise the prospects of achieving a successful exit of these
investments within the next two years. Assuming this can be achieved the Board
intends to consult with shareholders to decide on the most appropriate course
of action to ensure shareholder interests are best served.

 

 

Change of Broker

 

The Company also announces that Cairn Financial Advisers has been appointed as
the Company's sole broker with effect from 1 October 2022.

 

 

The information contained within this announcement is deemed by the Company to
constitute inside information stipulated under the Market Abuse Regulation
(EU) No. 596/2014, as retained as part of the law of England and Wales.

 

 

For further information please contact:

 

 Blue Star Capital plc                          0777 178 2434
 Tony Fabrizi

 Cairn Financial Advisers LLP                   +44 (0) 20 7213 0880
 (Nominated Adviser)
 Jo Turner / Liam Murray / Ludovico Lazzaretti

 Stanford Capital Partners Limited              +44 (0) 20 3650 3650
 (Broker)
 Patrick Claridge / John Howes / Bob Pountney

 

About Blue Star

Blue Star is an investing company with a focus on new technologies. Blue
Star's investments include SatoshiPay Limited, a payments business using
blockchain technology; 8 early-stage to mid-level esports companies, including
Guild eSports plc, a global esports business headquartered in London whose
lead investor is David Beckham and Dynasty eSports Pte Ltd., an esports
platform with a mission to become the global leader in B2B white label gaming
platforms; East Side Games Group Inc., a mobile leading free-to-play mobile
games group; NFT Investments plc, a company that engages, partners, incubates
and develops non-fungible tokens; and Sthaler Limited, an identity and
payments technology business which enables a consumer to identify themselves
and pay using just their finger.

 

Forward looking statement disclaimer

Certain statements made in this announcement are forward-looking statements.
These forward-looking statements are not historical facts but rather are based
on the Company's current expectations, estimates, and projections about its
industry; its beliefs; and assumptions. Words such as 'anticipates,'
'expects,' 'intends,' 'plans,' 'believes,' 'seeks,' 'estimates,' and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to known
and unknown risks, uncertainties, and other factors, some of which are beyond
the Company's control, are difficult to predict, and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements. The Company cautions shareholders and prospective
shareholder holders not to place undue reliance on these forward-looking
statements, which reflect the view of the Company only as of the date of this
announcement. The forward-looking statements made in this announcement relate
only to events as of the date on which the statements are made. The Company
will not undertake any obligation to release publicly any revisions or updates
to these forward-looking statements to reflect events, circumstances, or
unanticipated events occurring after the date of this announcement except as
required by law or by any appropriate regulatory authority.

 

 

 

 

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