TIDMCHRY
RNS Number : 2082C
Chrysalis Investments Limited
21 February 2022
The information contained in this announcement is restricted and
is not for publication, release or distribution in the United
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(other than Belgium, Denmark, the Republic of Ireland, Luxembourg,
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the Republic of South Africa.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 as amended by The
Market Abuse (Amendment) (EU Exit) Regulations 2019.
21 February 2022
Chrysalis Investments Limited ("Chrysalis" or the "Company")
Quarterly NAV Announcement and Trading Update
Net Asset Value
The Company announces that as at 31 December 2021 the unaudited
net asset value ("NAV") per ordinary share was 237.86 pence.
The above NAV calculation is based on the Company's issued share
capital as at 31 December 2021 of 572,483,160 ordinary shares of no
par value.
December's NAV represents an 5.6% decrease since September 2021.
The following investee companies were the most significant drivers
of NAV movement in the quarter:
-- Starling Bank Limited ("Starling") - where growth in deposits
continues to be very robust. In addition, comparable companies have
seen strong share price performances, as expectations of increasing
base rates have led to optimism over likely profit upgrades in the
sector;
-- wefox Holding AG ("Wefox") - which exhibited exceptional
growth during 2021, partly driven by recent M&A;
-- Klarna Holding AB ("Klarna") - despite strong growth
continuing into the third quarter, where year-to-date Gross
Merchandise Volume ("GMV") growth over the first nine months of
2021 was 63% in US dollar terms, with the US growing at over 300%,
the valuation has been modestly reduced. This reflects weakness in
certain comparative companies' valuations; and
-- THG plc ("THG") and Wise plc ("Wise") - which saw share price
falls of 55% and 30% respectively.
Overview
The aggregate trading performance of the portfolio over the
period remained robust. Valuations of growth companies in global
stock markets came under pressure over the quarter, as investors
became increasingly concerned over the outlook for inflation and
the likely quantum of interest rate rises that may be deemed
necessary by Central Banks to control price rises. While this has
had some impact on valuations of certain portfolio companies, in a
number of cases the rates of growth being exhibited by the
Company's investments have offset any valuation compression. In
addition, foreign exchange movements caused a negative impact on
the gross assets of over one percentage point.
Portfolio activity
The Company raised approximately GBP60 million in December 2021.
Some of these proceeds were deployed into follow-on investments, as
indicated during the fund raise. This included:
-- In November, the Company invested approximately GBP12.5
million in Sorted to continue to expand the company's offering and
support growth; and
-- In December, the Company invested an extra GBP15 million in
Smart Pension, where an opportunity arose to acquire a further
stake, which the Investment Adviser decided to pursue given the
performance of the company since initial investment
Portfolio news
The Investment Adviser was encouraged by the trading performance
and operational progress of several key holdings over the
period:
Wise released a Q3 trading update (calendar Q4) on 19 January
which was stronger than expected. Over 4 million customers
transacted on Wise over the period with the number of active
personal customers increasing +26% year-on-year to 4.1m while the
number of active business customers increased +39% year-on-year to
250k. Transaction volume in Q3 was GBP20.6bn, which was more than
double some consensus estimates, and represents the highest level
of sequential volume ever added quarter-on-quarter.
Revenues increased +34% over the period to cGBP150m, which was
c8% ahead of market expectations, and the Investment Adviser was
encouraged by the fact that management increased its full-year
revenue guidance to +30% (from mid-to-high twenties at the interim
stage).
Another listed asset, Revolution Beauty, also released a
positive trading update in January which covered the key Christmas
trading period. From 1(st) November to 31(st) December 2021,
revenues increased +41% which was in line with market expectations.
The company is making significant progress, growing internationally
and expanding key partnerships. It has confirmed that it will roll
out into over 2,800 Walgreens' stores in Q1 FY23 and launch its
newly established haircare product, Plex, across 870 Target stores
towards the end of January. The Makeup Revolution brand commences
its launch into Boots on 21(st) February 2022 and will roll out
into the top 336 Boots stores across the UK; this will see
Revolution Beauty sell its products across four categories within
the UK's leading Health and Beauty retailer. Revolutions Beauty's
direct-to-consumer division has also been performing well and
revolutionbeauty.com sales grew +50% through December.
Management confirmed full-year guidance in this trading update,
and the Investment Adviser views this performance as extremely
encouraging given the difficult backdrop and trading environment
being experienced by the retail industry.
Despite a very strong comparison period, Klarna continues to
report exceptionally robust rates of organic growth. Global GMV
over the first nine months of 2021 was $57.3bn, which represented a
growth rate of +63% year-on-year and the US, which is Klarna's
fastest growing market, generated over 300% GMV growth, with
customer numbers exceeding 21 million.
Net operating income over the period was $1.2bn, compared to
$742m in the prior year (+62% year-on-year), implying stable take
rates. Growth continues to be supported by M&A and strong
product innovation. Partnerships with Stripe and Billie were
announced during the period and B2B services are gaining traction.
The Investment Adviser believes Klarna continues to develop an
unparalleled growth proposition for retailers across content
creation partnerships, dynamic and search advertising, and virtual
shopping.
Listed peers did de-rate during the period and have continued to
de-rate post period end but their strong share performance prior to
this is noted. Affirm's share price, for example, increased +77%
through Q3 (from $67 to $119). Affirm recently reported a mixed set
of financials: industry analysts were generally encouraged by solid
revenue growth but viewed guidance around lower "take rates"
negatively. The latter is considered a stock specific issue.
Starling Bank continues to be a stand-out performer within the
portfolio and the company enters 2022 well positioned to exploit a
material opportunity. As of early January, Starling had opened over
2.7 million accounts to date, including 475,000 accounts for small
and medium-sized enterprises and the company's UK SME market share
was over seven per cent, around half the market share of Barclays.
The deposit base stood at GBP8.4 billion, up from GBP4.8 billion a
year earlier, and lending had increased from GBP1.9 billion to
GBP3.1 billion.
Starling is now consistently profitable, growing rapidly and is
well poised to continue taking market share from the UK's
high-street banks. Starling expects a continued expansion of its
lending capability through 2022, driven by strategic forward flow
arrangements, organic lending across various assets classes and a
targeted M&A strategy.
Starling is also entering an exciting new phase, with the launch
of its Software as a Service ("SaaS") proposition, taking
Starling's software to banks globally. With SaaS, the company will
offer partners the benefit of Starling's advanced technology to use
as their own. This was demonstrated last year by the partnership
with Standard Chartered Bank to launch the latter's new "Shoal"
product.
You & Mr Jones recently announced that it has changed its
name to The BrandTech Group. The company surpassed $500 million in
revenue and 5,000 employees in 2021, which the Investment Adviser
views as a landmark achievement. The BrandTech Group is the world's
number one enterprise-level marketing technology group, and the
largest global digital partner for some of the world's biggest
brands. There has been speculation that the company may consider an
IPO and David Jones (CEO) publicly stated that 'this is one option
along with another funding round, or major game-changing
acquisition'.
Cash Update
As of 18 February 2022, the Company had approximately GBP65m of
cash available. In addition, the Company also has significant
further liquidity available, most notably its holdings in listed
assets, which currently total approximately GBP107m. The sale of
Embark to Lloyds Banking Group plc is now complete and the current
level of cash available accounts for this transaction and the
payment of fees.
Portfolio Composition
As of 18 February 2022, the portfolio composition was as
follows:
Portfolio Company % of investment portfolio
Klarna 23.8%
--------------------------
Starling 18.5%
--------------------------
wefox 10.3%
--------------------------
Smart Pension 8.3%
--------------------------
The BrandTech Group 6.0%
--------------------------
Graphcore 4.5%
--------------------------
Wise 3.6%
--------------------------
Deep Instinct 3.3%
--------------------------
InfoSum 3.2%
--------------------------
Tactus 3.0%
--------------------------
Featurespace 2.9%
--------------------------
Revolution Beauty 2.4%
--------------------------
Sorted 2.3%
--------------------------
THG 1.9%
--------------------------
Secret Escapes 1.4%
--------------------------
Growth Street 0.0%
--------------------------
Cash 4.5%
--------------------------
Source: Jupiter Investment Management (UK) Limited. Holdings
size, as of 18 February 2022, are calculated using 31 December
valuations, adjusted for FX as of 18 February 2022 and capturing
transactions concluded post the NAV calculation period, and thus
using cash as of 18 February. For listed shares, the holding values
are based on closing share prices as of 18 February, namely: THG at
113p; Wise at 558p; and Revolution Beauty at 117p. Due to rounding
the figures may not add up to 100%.
Outlook
Conditions in the private growth market remain buoyant, with
minimal evidence that the turmoil in stock markets is feeding
through into significant curtailment of demand for high-quality
assets, underpinning the Investment Adviser's view that investment
horizons are longer than those typically prevalent in public
markets. With a robust liquidity position and a number of major
positions in the portfolio demonstrating strong growth, the
Investment Adviser is confident in the ability of Chrysalis to
drive meaningful NAV growth in the medium-term.
Investment Adviser Comments
Nick Williamson and Richard Watts (co-portfolio managers)
comment:
"The decline in NAV over the period was primarily driven by the
underperformance of our listed names, as well as a modest mark down
in the valuation of Klarna. We have commented extensively regarding
the performance of THG previously but, despite delivering strong
numbers, the extent of Wise's de-rating is disappointing. We
believe it has been caught up in the wider sell-off of technology
and growth companies. Elsewhere, the unlisted portion of the
portfolio has seen some strong performances, particularly from
Starling and wefox, which is based on their exceptional rates of
growth that currently show little sign of diminishing. The overall
impact on NAV has been further limited by some of our structures,
which help to mitigate downside. Despite on-going volatility in
listed markets, we do not see any fundamental deterioration in the
growth prospects of the portfolio, which we believe is the most
important determinant of long-term value creation for our investee
companies.
Wise is an exemplar of what we look for: a company sharing the
benefits of its technology between consumers, via lower prices and
a better experience, and shareholders, via improved financial
results, which has strong network effects. As the company becomes
bigger the network effects get stronger as the company shares the
value with users in terms of lower fees, faster transfer speeds and
new currency routes, for example, and, in this way, creates a
flywheel effect to drive continued growth. Our belief is that the
company should not deviate from this strategy, after all it is what
has made it so successful. Notwithstanding its strong operational
performance, the stock market is now valuing Wise at approximately
half the level as of September. We are hopeful that this valuation
is just a moment in time.
Many of Chrysalis's other investments, such as Klarna, Starling
Bank and wefox, for example, have similar network effect
characteristics to Wise and are also disrupting huge markets. As we
have stated previously, we firmly believe that we are still at the
start of digital disruption and, if we are correct, we should
expect our portfolio of digital market leaders in their sectors to
provide exceptional long-term growth. It is our strong belief that
this is the key attraction of Chrysalis; our investee companies are
in the foothills of a significant revenue opportunity.
Recent history suggests that stock markets can be a very
unforgiving environment for those companies prioritising growth
over near-term profitability and the market phases where there is
little appetite to invest in these types of businesses can
dramatically increase their cost of capital, via lower share
prices, and inhibit their ability to continue to grow quickly. It's
for this reason that Chrysalis is an attractive partner for our
investee companies. The ability to provide long term, supportive
capital is critical in enabling these highly disruptive companies
to invest and grow. If stock markets fail to appreciate the true
value of these businesses many more will likely choose to remain
private for longer or, indeed, return to the private market.
Chrysalis is very well positioned for such an outcome."
Factsheet
An updated Company factsheet will shortly be available on the
Company's website: https://www. chrysalisinvestments.co.uk
-ENDS-
For further information, please
contact
Media +44 (0) 7542 846 844
Montfort Communications chrysalis@montfort.london
Charlotte McMullen / Georgia
Colkin / Lesley Kezhu Wang
Jupiter Asset Management:
Magnus Spence +44 (0) 20 3817 1325
Liberum:
Chris Clarke / Darren Vickers
/ Owen Matthews +44 (0) 20 3100 2000
Numis:
Nathan Brown / Matt Goss +44 (0) 20 7260 1000
Maitland Administration (Guernsey)
Limited:
Elaine Smeja / Aimee Gontier +44 (0) 1481 749364
LEI: 213800F9SQ753JQHSW24
A copy of this announcement will be available on the Company's
website at 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.
This announcement is for information purposes only and is not an
offer to invest. All investments are subject to risk. Past
performance is no guarantee of future returns. Prospective
investors are advised to seek expert legal, financial, tax and
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The value of investments may fluctuate. Results achieved in the
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