REG - LMS Capital PLC - Net Asset Value(s)

LMS CapitalAnnouncement

07/02/2023 07:00

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RNS Number : 0842P  LMS Capital PLC  06 February 2023

 

 

 

7 February 2023

 

LMS CAPITAL PLC

NAV Estimate as at 31 December 2022

 

LMS Capital plc (the "Company" or "LMS") the listed investment company
provides the following update and estimate of net asset value ("NAV") as at 31
December 2022.

 

Net Asset Value Estimate

 

The Company has commenced the year end valuation review process which is based
on the latest performance updates from portfolio companies and third-party
fund manager valuations.

 

The Board currently estimates that the year end NAV will be in the region of
£46.6m (2021: £49.1 million) which equates to 57.7p per share (2021: 60.8p
per share). This represents a reduction of 3.7% on the prior year after
adjusting for dividends paid and reflects information currently available to
the Board on the performance of individual investments in the Company's
portfolio and is subject to further evaluation as well as completion of the
annual audit.

 

The performance is summarised below:

 

                                 Preliminary        Unaudited      Audited

                                 31 December 2022   30 June 2022   31 December 2021

                                 £ 'm
 NEW INVESTMENTS - DACIAN        10.1               9.4            7.9
 MATURE ASSET PORTFOLIO          20.8               20.8           23.0
 Total Investment Portfolio      30.9               30.2           30.9

 Cash                            17.9               18.9           20.1
 Other Net Assets/Liabilities    (2.2)              (2.1)          (1.9)
 Net Asset Value                 46.6               47.0           49.1
 Pence per Share                 57.7p              58.2p          60.8p

 

The valuation methodology and policy adopted is consistent with prior years
and is in line with IPEV guidelines. The carrying value of the funds is based
on the latest available information from the respective fund managers,
generally the 30 September 2022 fund valuation reports except for Weber, a
fund of listed US investments, which is based on a 31 December 2022 valuation.

 

Overview

 

·    Dacian

o  2022 was the first full year of operation for Dacian, the Romanian oil and
gas production company in which LMS holds $9.1 million of senior loan notes
and 32% of the ordinary shares.

o  Dacian has been profitable and cash generative during its first year,
energy prices remain substantially higher than when the acquisition was
underwritten in August 2020;

o  As reported in our half year and Q3 announcements, backlog maintenance
problems, inherited on takeover of the estate, have interrupted production in
some wells and in the short term have diverted the company's resources from
its planned workover projects to develop the fields and expand production.
However, as a result of management actions during Q2 and Q3, Dacian believe
that production is stabilising and expect to devote resources to development
activities with the aim of  producing production gains during 2023;

o  During the year the Company has recognised £1.3 million of accrued
interest on its loan notes;

o  The Board expects the investment to meet or exceed the Company's
medium-term return targets over its life.

 

·    Mature asset portfolio

o  Overall, taking account of foreign exchange movements and underlying
valuation changes over the year, the mature asset portfolio showed a net
reduction in value of £1.3 million. Information on the movements by asset is
included in note 1 below;

o  The mature asset portfolio comprises assets for the large part managed by
third-party managers and 82% of which is in the three largest positions,
Brockton, Medhost and Opus. LMS does not control the realisation process but
maintains a close dialogue with the managers. Our expectation is that there
may be some liquidity in 2023, although greater liquidity is more likely in
2024 and 2025.

 

·    Running costs were net £1.7 million (2021: £1.8 million) in line
with budget and remain strictly controlled. 2022 showed a reduction compared
to the prior year as the benefits of income from the Company's co-investment
activities began to be realised.

 

·    Cash balances were £17.9 million, 22p per share, (31 December 2021:
£20.1 million)

 

Deployment of capital

 

In our half year report we referenced opportunities in real estate development
and investment; we have continued to develop both activities.

 

·    Real estate development - the retirement living sector offers an
opportunity with strong demand drivers, where our experience in land assembly,
planning, design and development of specialist use real estate can be deployed
alongside sector operating knowhow. We have assembled an advisory group, which
has screened a number of opportunities during the year and we are currently in
discussion on a small number of potential projects. In evaluating potential
opportunities we are mindful of the risks, in particular around escalating
construction costs and a slowing housing market. We will only take forward
opportunities that offer risk adjusted returns that meet the Company's
long-term return criteria.

 

·    Real estate investment - we have been working with our real estate
investment team to establish an investment platform which will allow LMS to
bring co-investment capital, alongside its own investment, on a deal by deal
basis. We believe the market in 2023 will create some attractive buying
opportunities.

 

·    Energy - in the medium term we anticipate further "late life" oil and
gas production opportunities with the Dacian team although the priority for
2023 is to achieve the target production gains on the existing assets.

 

Outlook

 

The Board is aware of the impact on overall returns of the Company's
uninvested cash. However it remains disciplined and focussed on ensuring
capital is deployed in areas where the Company has clear competitive
advantage, in particular in energy and in real estate, and in the longer term
will generate attractive returns for investors.

 

The Dacian team has now completed its first year of operation and believes
that it is well positioned in 2023 to demonstrate the production gains that
underpin the investment case for this asset.  In real estate we are cautious
about market conditions but see opportunities and expect to deploy capital
during the year alongside our real estate industry partners.

 

Further information on the performance of the portfolio, underlying investment
valuations and changes during the year will be included in the Company's
audited results for the year ended 31 December 2022, which it expects to
announce in March 2023.

 

The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulation (EU) No.
596/2014. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.

 

For further information please contact:

 

LMS Capital plc

Nick Friedlos, Managing Director

0207 935 3555

 

Note 1 - NAV changes and portfolio summary

 

Overall, for the year as a whole, the Company's NAV, after adding back
dividends paid, has decreased by £1.8

million, 3.7%. The principal components of the full year change are described
below.

 

·    Foreign exchange net gains on the investment portfolio during the
year were £2.8 million. 76% of the Company's investment portfolio is
denominated in US Dollars.

 

·    Excluding the effect of foreign exchange rate changes, the mature
asset portfolio showed a net reduction of £4.1 million in the year. The
principal elements were:

o  An increase of £0.5 million in Brockton reflecting the unwinding of the
discounted cash flows;

o  An increase of £0.8 million in the valuation of the Opus Capital Venture
Partners fund. This fund has two principal remaining investments, both of
which are performing well and the manager believes, subject to market
conditions, have good prospects for realisation;

o  Decreases totalling £2.3 million on two assets reflecting actual or
imminent disposal values

§ £1.8 million on ICU which is being sold by SFEP, anticipated to conclude
imminently, and will produce proceeds of approximately £0.3 million for LMS.
This is a disappointing outcome and a poor result from the fund. ICU is the
last SFEP asset in the portfolio;

§ £0.5 million reduction in value of Eden Ventures fund which sold its last
remaining asset in Q4 2022.

o  A decrease of £0.9 million in Weber Capital Partners, a US listed small
cap fund. The decrease reflects quoted market price changes during the year;

o  A decrease of £0.7 million reflecting a reduction in the valuation of
Medhost by Primus, the lead manager. The company operates in a mature market
and continues to be profitable and cash generative and is performing in line
with budget;

o  A decrease of £0.6 million in the valuation of Elateral; and

o  Other portfolio net reductions were £0.9 million.

 

·    Interest accrued on Dacian amounted to £1.3 million.

 

·    Other movements were a net reduction of £1.8 million and include the
following:

o  Full year running costs were £1.7 million;

o  Investment support costs (support costs for real estate and co-investment
activities) were £0.4 million; and

o  Other movements include unrealised foreign exchange gains of £0.4 million
on non-portfolio assets, principally US Dollar bank accounts, £0.3 million
tax payable, and £0.2 million of bank interest receivable.

 

Quoted Investments

 

 Investment                                    31 Dec 2022  30 June 2022  31 Dec 2021

                                               £' m         £' m          £'m
 IDE Group (now Tialis)                        0.1          0.1           0.2
 Other                       3 small holdings  0.1          0.1           0.2
 Total                                         0.2          0.2           0.4

 

Unquoted Investments

 

 Investment                                                                                                    31 Dec 2022  30 June 2022  31 Dec 2021

                                                                                                               £' m         £' m          £'m
 Dacian Petroleum   USD        Onshore oil and gas production assets in Romania                                10.1         9.4           7.9
 Medhost            USD        Provides cloud based enterprise and departmental management and healthcare      5.7          5.3           6.0
                               engagement solutions to community hospitals in the US.
 Elateral           Sterling   UK/US software company in the digital marketing sector providing marketing      0.6          0.6           0.8
                               content management solutions
 ICU                USD        Design and distribution of eyewear, principally reading glasses, through large  0.2          0.6           1.7
                               US retailers

 Other investments  USD/                                                                                       0.1          0.2           0.1

                    Sterling
 Total                                                                                                         16.7         16.1          16.5

 

Funds

 

 Investment                   Currency                                                                                31 Dec 2022  30 June 2022  31 Dec 2021

                                                                                                                      £' m         £' m          £'m
 Brockton Capital Fund 1      Sterling   UK real estate fund, the remaining asset of which is a debt investment in a  6.0          6.0           5.6
                                         high end London residential development
 Opus Venture Capital Fund 2  USD        Early-stage technology fund with two principal remaining assets              5.3          5.4           3.9
 Weber Capital Partners       USD        US listed microcap investment fund focussed primarily on medical and         2.0          1.8           2.6
                                         technology sectors
 Other investments            USD/                                                                                    0.7          0.8           1.8

                              Sterling
 Total                                                                                                                14.0         14.0          13.9

 

 

 

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