Chrysalis Investments’ net asset value (NAV) continued to slide in the three month ending 31 December 2022, falling 13% to 128p per share by the end of Q4.
The trust seemed beset with misfortune last year, as the valuations of some of its key private holdings, such as Klarna and Starling Bank, fell considerably. In the three months to 30 September, the trust’s NAV was down nearly 10%.
Those difficulties continued in the fourth quarter, with Chrysalis electing to sell its entire stake in Revolution Beauty in November. Though this decision was vindicated following the emergence of serious governance problems within the company, the trust still crystallised a 90% loss.
Aside from the Revolution sale, portfolio activity was limited, with the only other move being the disposal of £5.9m worth of Wise shares in October, a reduction of its twelfth largest stake.
Chrysalis identified that the four holdings whose fair value declined the most, accounted for 11.4p of the 19.5p decrease in NAV.
The trading update stated the slashed valuations were driven largely by the external valuer and the independent valuation committee’s transition towards a more “market-based approach”, and away from a “price of recent investment” approach. The report did not reveal the names of the companies in question, although an analyst note from Jefferies pointed to Graphcore, Wefox, Deep Instinct and Featurespace.
The duo behind the Jefferies report, Matthew Hose and Fiona Huang, posited that Chrysalis’ NAV “might finally be finding some stable ground”.
“The liquidity position versus the portfolio’s current funding requirements remains healthy, although it is not clear if this includes the funding round for Smart Pension that has been indicated to take place later in the year. Our estimated NAV becomes 127p, to which the shares trade on a 32.4% discount,” they added.
Chrysalis currently trades on a nearly 40% discount, which goes some way to explaining the ‘buy rating’ bestowed by Jefferies.
Foreign currency movements were the second largest detractor to NAV during the quarter, eroding 3.3p per share.
Co-managers Nick Williamson (pictured left) and Richard Watts (pictured right) said: “Over the last 12 months, we have worked hard with our portfolio companies to get them into the best possible financial shape, with strengthened balance sheets and lower cash burn forecasts. While we expect there are still some final investments to be made, we believe that we are coming to the end of this process and are confident that our companies are generally in a strong position to continue growing robustly.”
Some 80% of the portfolio is either profitable, funded to profitability, or has a two-year cash runway, and with around £66m in net cash as of 30 January 2023, the report suggested that Chrysalis is in a strong position in terms of both liquidity and capitalisation.
Watts and Williamson said that they believed the portfolio to be attractively valued versus its listed peers, adding that they were pleased by the portfolio’s overall trading performance, despite the continued slide in NAV.
Chrysalis’ share price has dropped by 56% over the last 12 months, but the trust has recovered somewhat since October’s low. As of 1 February, NAV sat at 148p, around where it was on 30 September 2022, and share price has grown to 85p.
Since its inception in November 2018, share price is down 19%, and nearly 70% lower than its high in September 2021.
