REG - Chrysalis Invs Ltd - Quarterly NAV Announcement and Trading Update

Chrysalis InvestmentsAnnouncement

22/08/2022 07:00

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RNS Number : 6953W  Chrysalis Investments Limited  22 August 2022

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Abuse (Amendment) (EU Exit) Regulations 2019

 

22 August 2022

 

 

Chrysalis Investments Limited ("Chrysalis" or the "Company")

 

Quarterly NAV Announcement and Trading Update

 

Net Asset Value

 

The Company announces that as at 30 June 2022 the unaudited net asset value
("NAV") per ordinary share was 163.48 pence.

 

The above NAV calculation is based on the Company's issued share capital as at
30 June 2022 of 595,150,414 ordinary shares of no-par value.

 

June's NAV represents a 22.8% decrease since March 2022. As detailed below,
wefox, Klarna, Starling, Brandtech and Wise were the most significant drivers
of the movement in NAV over the quarter.

 

Key highlights of period:

§      First period covering new independent valuation committee.

§      Strong revenue growth across the portfolio and excellent trading
among the Company's largest holdings.

§     Robust balance sheet: as of 19 August 2022, the Company has £48m in
cash and £57m in listed assets, making total liquid assets of 20.4% of
current market cap. Wise has performed strongly post period end, offset by the
share price fall in Revolution Beauty.

§    Well-funded portfolio of assets: several funding rounds completed
(raising a total of $1.4 billion year to date), including Starling, Klarna and
Featurespace, which were all supported by Chrysalis and are now either
profitable or considered funded through to profitability.

§    Valuations negatively impacted by historic levels of inflation and
material interest rate rises but strong rebound in equity markets and
performance of listed peer benchmarks post period end.

§    wefox Holding AG ("wefox") - this holding was valued upwards in line
with the pre-money valuation (approximately €4bn) of the funding round which
took place in July which was led by Mubadala Investment Company with
participation from LGT, Horizons Ventures and OMERS Ventures. wefox grew
revenues to more than $320m in 2021 and is on track for revenues to exceed
$600m by the year end, representing growth of almost 100%.

§    Klarna Holding AB ("Klarna") - represented 19% of the portfolio as at
31 March 2022 and was written down by 78% during the period, in line with the
valuation of the recent funding round completed in mid-June. Since the funding
round closed, the share prices of Klarna's listed peers have risen
considerably (Affirm +72% and PayPal +39%).

§    Starling Bank Limited ("Starling") - Starling recently reported its
first full year of profitability, with a pre-tax profit of £32.1m for the
year ended 31 March 2022. Starling has continued to grow at pace and in June
2022, Starling reported an annualised revenue run-rate of £331.2m and
an annualised PBT run-rate of £92.0m driven by year-on-year lending growth
of 72% to £4bn. Starling continues to build on the mortgage capability it
gained through the acquisition of Fleet Mortgages in July 2021, with more than
£2bn of mortgages now on Starling's balance sheet as at June 2022. The growth
in lending has been funded by Starling's growing deposit base, which
increased by a further £600m in just three months to end June
2022. Starling's Return on Tangible Equity for June 2022 is already
best-in-class for a UK bank at 17.5%, compared to c.11% for the large high
street banks and c.16% for other specialist and mid-tier lenders. This is
despite Starling holding a significant capital surplus above its regulatory
minimum. Despite the positive trading update from Starling, the valuations of
listed peers within Starling's comparable peer group have derated and this has
resulted in a downward adjustment to Starling's valuation at period end on a
comparable valuation basis.

§     The Brandtech Group LLC ("Brandtech") - Brandtech has also continued
to perform exceptionally well in both revenue and profit growth during the
period. However, in a similar way to Starling, the share price valuations of
its peers have not performed well during the period. The net result,
notwithstanding its strong operating performance, is a downward adjustment on
a comparable valuation basis.

§     Wise plc ("Wise") - the Wise share price saw a 40% decline down to
297.4p at the end of June, reflecting the difficult market conditions during
the period. Post period end Wise's share price has rallied to above the 31
March level (495p), driven by a strong trading update, and closed on 18 August
at 541.6p.

 

Investment Adviser Comments

Richard Watts and Nick Williamson (co-portfolio managers) comment:

'We are encouraged that our NAV outturn was in line with the 23% NASDAQ
decline in Q2, particularly when our second largest holding, which represented
19% of the portfolio at the beginning of the period, was marked down by almost
80%. The implied write down for the rest of the portfolio is approximately 8%
which reflects strong trading, a positive funding round for wefox and the
inherent downside protections we have structured into many of our investments.

 

'Equity markets have rebounded very strongly since the 30 June, and we note
the very strong performance of some of the listed peers we benchmark our
portfolio assets against. This has already been reflected in one of our
portfolio assets raising primary capital at a premium to its previous funding
round and should lead to future NAV progression, if these recent gains are
sustained.

 

'With over £48m cash and £57m of listed assets, which together represent
20.4% of the market capitalisation, Chrysalis is in a very strong position
heading into H2 and we remain confident in the future potential of this
portfolio and the outlook of the Company.'

 

 

Overview

 

30 June 2022 marks the first period end that the Company's new independent
valuation committee has opined on the Company's valuations.

 

Valuations are prepared by a third-party specialist valuation firm and
presented to the independent committee who meet to discuss and make a final
valuation recommendation to the Company's Board.

 

The objective of the new valuation committee is to provide an independent
view, bringing consistency and insight to the process while challenging
valuation assumptions. It comprises a team of highly qualified individuals
whose combined skill sets cover all aspects required for the valuing of an
unlisted portfolio.

 

The committee is chaired by Lord Rockley, a former KPMG audit partner with a
focus on private equity and venture capital, and comprised of a team of highly
qualified individuals: Diane Seymour Williams, who has over 30 years in asset
and wealth management; Jonathan Biggs, who worked for 20 years at Accel, a
leading global venture and growth capital investor; and current board member
Tim Cruttenden, CEO of VenCap International plc, one of Europe's largest fund
of fund investors in the venture and growth capital sectors. A large portion
of the portfolio is valued using multiple analysis, using a peer group of
comparable companies recommended by the third-party valuer and reviewed by the
valuation committee.

 

However, the valuer does also take into consideration the pricing of recent
completed funding rounds and secondary transactions in equivalent securities
held by other investors. In this quarterly valuation, wefox and Klarna have
been revalued by reference to this metric. The weighting given to this pricing
metric is reduced over time and returns to a multiple analysis.

 

This approach to valuation is recognised as one of the most valid methods of
determining the fair value of a portfolio like that of Chrysalis', though as
with any other valuation method, it does not preclude valuation volatility
when markets are experiencing the turmoil that has been seen over the last
three quarters.

 

During the period, equity markets remained under pressure amid continuing
macroeconomic turbulence. Historic levels of inflation and material interest
rate rises have driven further share price declines in the basket of
comparable companies used to determine valuations and to benchmark fundraising
activity. Foreign exchange movements benefitted the overall portfolio
valuation by just over 1%.

 

Revenue growth in the portfolio remains strong and the Company's largest
holdings continue to trade very well, which has helped to offset the impact of
valuation multiple contraction. Post period end, equity markets have performed
much better with the GS Non-Profitable Tech Index +13% and NASDAQ +15%. This
has led to a material rerating in many relevant listed peers to our portfolio
companies, including Affirm (+72%), Trade Desk (+57%), Lemonade (+35%), PayPal
(+39%), Bloc (+21%), Amazon (+30%), Adyen (+16%) and Crowdstrike (+13%).

 

The downward valuation of Klarna was the largest in the portfolio based on the
funding round metric. As the Investment Adviser noted at the time of the
fundraise (in which the Company invested), the pricing of the round did not
reflect, in its view, the underlying value of the company. The valuation of
Klarna will revert to a multiple analysis over the coming quarters in line
with valuation guidelines. It is worth noting that since period end, Klarna's
peer group comparables have seen significant upward reratings of between 40%
and 90% in value terms.

 

Portfolio activity

 

A number of funding rounds have completed in recent weeks which will enable
portfolio assets to continue growing strongly, pursue attractive M&A
opportunities and disrupt peers. The Company has supported many of these
funding rounds while maintaining a strong capital position:

 

§     In April, Chrysalis participated in Starling's funding round with a
£10m investment. Starling raised a total of £130.5m at a valuation of £2.5
billion.

 

§   In July, the Company participated in Klarna's $800m fundraise and
committed to its pro-rata entitlement of $8.7 million. The round valued the
company at $6.7 billion and attracted investment from both new and existing
investors.

 

§    In recent weeks, Chrysalis also increased its holding in Featurespace.
Chrysalis invested £5m as part of a successful Series G funding round. The
funding round was completed at a premium to the Company valuation of the asset
as at 30 June.

 

The Company's Investment Adviser notes that each of these companies is now
either profitable or considered to be funded through to profitability.

 

Cash and Liquidity Update

 

Chrysalis has a robust balance sheet and a portfolio of assets that is
generally very well-funded. Four of the Company's portfolio assets have
already completed funding rounds year to date raising a total of $1.4 billion.

 

As of 18 August 2022, the Company held approximately £48m of cash. In
addition, the Company also has further liquidity available, most notably its
holdings in listed assets, which currently total approximately £57m. The
aggregate movement in the Company's listed assets post period end equates to
just £0.3m, this equates to 0.1p per share.

 

The Company therefore has 9.4% of its market capitalisation in cash, with
listed assets representing 11.0% of its market capitalisation. Liquid assets
therefore represent 20.4% of the current market capitalisation of the Company.

 

Portfolio Composition

As of 18 August 2022, the portfolio composition was as follows:

 

 Portfolio Company    % of portfolio
 Starling             20.1%
 wefox                17.1%
 Smart Pension        10.9%
 The Brandtech Group  9.4%
 Graphcore            6.4%
 Klarna               6.1%
 Featurespace         4.4%
 Deep Instinct        4.2%
 Wise                 3.9%
 InfoSum              3.1%
 Tactus               3.0%
 Sorted               3.0%
 Secret Escapes       1.4%
 THG                  1.2%
 Revolution Beauty    0.7%
 Growth Street        0.0%
 Gross cash           5.0%

 

Source: Jupiter Investment Management Limited. Holdings size, as of 18 August
2022, are calculated using 30 June valuations, adjusted for FX as of 18 August
2022 and capturing transactions concluded post the NAV calculation period, and
thus using cash as of 18 August. For listed shares, the holding values are
based on closing share prices as of 18 August, namely: THG at 63.86; Wise at
541.6p; and Revolution Beauty at 26.5p. Due to rounding the figures may not
add up to 100%. The above percentages are based on an aggregate portfolio
value (including cash) of approximately £0.98 billion.

 

Outlook

 

Despite persistent macroeconomic and geopolitical uncertainty weighing heavily
on equity markets through H1, some of our leading assets completed successful
funding rounds which will enable them to continue executing their growth
strategies and growing rapidly.

 

In recent weeks, equity markets have fared much better, and we have witnessed
a material rerating of both NASDAQ and the GS Non-Profitable Index. A rerating
of relevant listed peers, combined with strong revenue and earnings growth
across the portfolio, should have positive implications for the value of the
Company's portfolio in forthcoming quarters.

 

Factsheet

 

An updated Company factsheet will shortly be available on the Company's
website: https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk/)

 

-ENDS-

 

 

 For further information, please contact

 Media

 Montfort Communications

 Charlotte McMullen / Georgia Colkin / Lesley Kezhu Wang   +44 (0) 7542 846 844

                                                           chrysalis@montfort.london
 Jupiter Asset Management:                                 +44 (0) 20 3817 1696

 James Simpson

 Liberum:                                                  +44 (0) 20 3100 2000

 Chris Clarke / Darren Vickers / Owen Matthews

 Numis:                                                    +44 (0) 20 7260 1000

 Nathan Brown / Matt Goss

 Maitland Administration (Guernsey) Limited:               +44 (0) 1481 749364

 Elaine Smeja / Aimee Gontier

 

LEI: 213800F9SQ753JQHSW24

A copy of this announcement will be available on the Company's website at
https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk)

The information contained in this announcement regarding the Company's
investments has been provided by the relevant underlying portfolio company and
has not been independently verified by the Company. The information contained
herein is unaudited.

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