The bad news keeps on coming for Chrysalis, as one of its newer holdings, Revolution Beauty, warns it may have to suspend trading if it cannot get its final results signed off by the end of the month.
The cosmetics company was one of several new investments added to the portfolio last summer by managers Richard Watts (pictured right) and Nick Williamson (pictured left) when the trust was flying high on the back of strong performance and soaring valuations for its late-stage private companies.
Watts and Williamson backed the makeup and skincare group, which sells to retail giants like Boots and Superdrug, ahead of its £500m listing on London’s junior Aim exchange, a departure for the duo who typically invest in businesses that are two to five years out from IPO.
But a little over a year later its shares are in freefall amid an ongoing audit probe into its first set of full-year accounts as a listed business.
On 2 August, the self-described “multi-channel mass beauty innovator” surprised investors when it delayed the publication of its final results, stating additional time was required to complete the company’s audit.
At the time, management said it was not aware of any “material issues” raised by the auditor and promised the update, covering the year to 28 February 2022, would be available by the end of August. However, over a week later, the company revealed auditors subsequently raised “certain accounting issues” that could have “a material impact” on its final results.
In an RNS statement last Friday, Revolution admitted it was unlikely its results would be ready in time for the revised deadline and that from 1 September its shares would be suspended pending the release of the audited figures.
Revolution Beauty’s shares plunged 37% on the day, bringing its total losses since the first announcement to 73%. Shares in the company now trade at a measly 16p, a 90% discount from their placing price of 160p last July.
Jupiter halves stake in Revolution Beauty as Boohoo loads up
Portfolio Adviser reached out to Chrysalis for comment on the ongoing developments at Revolution Beauty but did not hear back in time for publication.
Its quarterly NAV update, published today, contained scant reference to the cosmetic group’s woes, apart from noting that its share price plunge offset a turnaround for Wise post-Q2.
At the end of July, Revolution Beauty made up 1.9% of the concentrated portfolio’s NAV. But based on the closing price of 25.6p on 18 August, that had dipped to 0.7%, making it the smallest holding in the portfolio.
Amid question marks over Revolution Beauty’s accounts, Jupiter, which became a cornerstone investor via Chrysalis’ investment, has been offloading its shares in the business.
On the same day the beauty group first postponed its results, Jupiter sliced its stake in the business from 16.8% to 15%. By 11 August, that had halved to 8.4%.
Around the same time, Axa Investment Managers, another big backer, also cut its position to 3.8%. However, RNS filings show that fast fashion retailer Boohoo has been buying Revolution Beauty on the dip, increasing its position to 12.9% by 16 August.
Valuations show signs of improving
At the end of 30 June 2022, Chrysalis’ NAV was 163.48p, a 22.8% decline from the end of March.
Much of this was down to the previously disclosed hit from Klarna, which saw its valuation slashed by 78% during the period.
However, after accounting for the blow from the Swedish buy-now-pay later firm, which makes up 19% of NAV, the implied writedown for the rest of the portfolio was only 8%, according to the trust’s independent valuation committee.
Wefox, its second largest holding at 17.1%, enjoyed a 50% valuation uplift compared to June 2021, following its latest funding round, which valued the business at €4bn.
Featurespace has also been written up, with Chrysalis chipping in £5m into its Series G funding round, though the amount has not been quantified.
Since the end of Q2, equity markets have rebounded, including “strong performance” from some of the listed peers Chrysalis’ holdings are benchmarked against, Watts and Williamson said.
“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.”
Despite an improving picture for some of its holdings, Chrysalis continues to trade at a substantial discount of 59%, according to the Association of Investment Companies.
See also: Chrysalis puts a pin in share buybacks as discount slumps to 55%
