Net Asset Value(s) Q3

RNS Number : 7876T

Schroder UK Public Private Tst plc

29 November 2021

 

Schroder UK Public Private Trust plc

Announcement of Net Asset Value as of 30 September 2021

Schroder UK Public Private Trust plc (the "Company") today announces its net asset value ("NAV") as of 30 September 2021.

Summary

· NAV of 47.13p per share as of 30 September 2021, an increase of 15.9% relative to the NAV as of 30 June 2021 (40.65p per share).

· Performance primarily driven by the successful initial public offering ("IPO") of Oxford Nanopore Technologies ("ONT") which resulted in a fair value gain of £62.8 million.

· Further progress achieved in the rebalancing the portfolio with one new private investment in disruptive global neobank, Revolut Ltd ("Revolut"), and two new public investments in leading automated test and assurance solutions provider, Spirent Communications plc ("Spirent") and capital provider to alternative investment managers, Petershill Partners plc ("Petershill Partners").

· Since the period end, the Company also completed its third new private investment in leading market research technology platform, Attest Technologies Ltd ("Attest").

· Company is well-placed to capitalise on new investment opportunities in both the public and private equity markets.

Introduction

Economic backdrop

UK equities rose over Q3 in local currency terms as the market was impacted by a variety of competing factors. Western monetary policymakers became more hawkish as inflationary pressures grew and the US Federal Reserve (Fed) signalled it would begin to taper its quantitative easing (QE) programme later this year. Meanwhile, the Bank of England (BoE) remained on track to complete its pandemic QE programme before the end of 2021.

A more hawkish tone from central bankers (and markedly higher energy prices in late September) drove bond yields sharply up at the period end. Yields rose back to levels seen in the spring and 10-year government bonds rose above 1% for the first time since before the pandemic. Markets were also influenced by global growth concerns centred on China. A zero-tolerance attitude by the Chinese authorities to the Delta Covid-19 variant further disrupted supply chains already strained by economies reopening.

While robust Q2 corporate earnings helped to support valuations, the strength of the economic recovery has caught many companies by surprise, causing disruption on a global scale. Rising global delivery times point to higher inflation, and a volatile energy market has further complicated any analysis of underlying trends. Central banks focused on how transitory the post-Covid inflationary surge might be and closely scrutinised second-round inflation risks around wage growth.

Objectives and progress

The most important impact on the Company's portfolio in the third quarter was the successful IPO of ONT on the London Stock Exchange which had three notable consequences. Firstly, it resulted in a substantial fair value gain of £62.8 million which acted as the primary driver of NAV performance contributing to 94% of the positive fair value gains over the period. Secondly, it resulted in a significant improvement in the portfolio's overall liquidity profile with the Company's quoted holdings increasing to 50.6% of total investments (excluding Rutherford Health). And thirdly, a partial sale of the holding at IPO provided net proceeds of £10.6m, which when combined with the funds received from the sale of Inivata, enabled further acceleration of the portfolio rebalancing with three new investment completed during the period.

Portfolio composition and valuation reviews

As of 30 June 2021, the Company had 34 portfolio holdings¹ including 9 quoted holdings and 25 unquoted holdings. During the period, the number and composition of holdings was impacted by the following events:

· New investment in Revolut.

· New investment in Spirent.

· New investment in Petershill Partners.

· ONT completed its IPO.

As of 30 September 2021, the Company ended the period with 37 holdings² including 12 quoted holdings and 25 unquoted holdings. All the Company's quoted holdings were valued using unadjusted quoted prices except Rutherford Health which continues to be fair value priced by Link Fund Solutions Limited ("LFS"), the Company's Alternative Investment Fund Manager (AIFM). For the unquoted holdings, the AIFM considered any material 'triggering' events since the last valuation assessment as of 30 June 2021 and as such conducted five valuation reviews to determine the fair value of the portfolio as of 30 September 2021.

^{1 Excluding 7 holdings with no value. 2 Excluding 6 holdings with no value.}

Financial Performance

Attribution Analysis (£m)	Quoted	Unquoted	Net (debt)/cash	Other	NAV
Value at 30.06.21	87.8	254.2	1.3	26.1	369.4
+ Investments	18.2	11.0	(29.2)	-	-
- Realisations at value	-	(12.2)	40.1	(27.9)	-
+/- Fair value gains	(4.7)	61.1	-	-	56.4
+/- FX losses	1.0	1.4	-		2.4
+/- Reclassified holdings	142.9	(142.9)	-	-	-
+/- Costs and other movements	-	-	(3.9)	3.9	-
Value at 30.09.21	245.2	172.6	8.3	2.1	428.2

Source: AIFM as of 30 September 2021.

The NAV as of 30 September 2021 was £428.2 million or 47.13p per share reflecting an increase of 15.9% compared with the NAV as of 30 June 2021.

The half year NAV return of +15.9% comprised:

· Quoted holdings: -1.3%

· Unquoted holdings: +16.5%

· Foreign exchange: +0.6%

· Costs and other movements: 0.0%

Portfolio

The Company's quoted holdings saw a decline in value of 5.4% contributing -1.3% to the quarterly change in NAV. The largest positive contributor to performance was IDEX Biometrics ASA ("Idex") which increased by 13% and which continued to make progress on the path to full commercialisation of its biometric sensors integrated into payment cards. The largest negative contributors were Athenex, Immunocore and Johnson Matthey which declined 35%, 5% and 13% respectively. The other quoted holdings did not materially impact the portfolio with individual fair value changes of less than £1.0 million.

The Company's unquoted holdings saw an increase in value of 24.0% contributing +16.5% to the quarterly change in NAV. The most substantial positive contributor was ONT which completed its IPO resulting in a fair value uplift of £62.8 million or 69.2% based on the unadjusted quoted price on 30 September 2021 (612.5p per share). As in the prior quarter, ONT is now the largest holding within the portfolio representing 34.2% of total investments. 

Elsewhere, the unquoted portfolio experienced three small negative revaluations totalling £3.4 million, including adjustments to Mafic and Industrial Heat following increased uncertainty regarding the outlook for these businesses.

Foreign Exchange

During the quarter, the fair value of investments denominated in USD, NOK and CHF benefited from the depreciation in the value of GBP.

Cash, debt, and net current assets

As of 30 September 2021, the Company held £8.3 million in cash with the revolving credit facility currently unutilised. 

Investment Activity

Realisations

The most significant realisation during the period was the partial sale of ONT. As part of the IPO process, ONT's existing shareholders were offered the possibility to sell up to 10% of their shareholding at the IPO price. As such, the Portfolio Manager opted for the divestiture of 10% of the Company's shareholding. While they remain highly confident of ONT's prospects to generate continuous shareholder value, given the large position in the portfolio, the Company decided to diversify its portfolio through a partial realisation. The net proceeds from the secondary share sale amounted to £10.6 million. The Company's remaining stake in ONT was valued at £142.9 million as of 30 September 2021.

Investments

Early in the third quarter, as reported in the Q2 NAV announcement, the Company made new investment in Revolut (unquoted). In June 2021, the Company made an initial investment of £3.5 million into Johnson Matthey (quoted), and during the third quarter increased its holding to bring the total investment to £7.5 million. Johnson Matthey is a global leader in the applied materials chemistry, producing materials that are used in a wide range of industrial processes from automotive exhaust catalysts to the production of industrial gases.

In August 2021, the Company completed a $13.7 million investment in the leading disruptive global neobank, Revolut alongside its $800 million Series E funding round led by new investors, SoftBank Vision Fund 2 and Tiger Global Management, valuing the business at $33 billion. Revolut, the ambitious neobank with more than 16 million customers worldwide, plans to use the significant primary investment to further its growth plans, in particular its ongoing product innovation aimed at meeting customers' everyday financial needs and aspirations, from quick and easy global transfers, to managing everything from savings to insurance, to democratising wealth and trading activities. It will also support the expansion of Revolut's offering to US customers and its entry into the Indian market and other international markets.

The Company subsequently made three further new investments in Spirent (quoted), Petershill Partners (quoted), and after the period end, Attest (unquoted). Further details on each company and transaction are outlined below.

Spirent Communications

In September 2021, the Company made a £7 million investment into publicly listed Spirent Communications plc ("Spirent"), a leading provider of automated test and assurance solutions for telecom networks and datacentres. As ethernet speeds are upgraded and 5G networks are rolled out, new uses and services are developed. The testing products and services that Spirent offers are a critical component enabling the development and ongoing monitoring of the performance of these networks.

The upcoming cycle of capital expenditure for the rollout of 5G is expected to be an extended one because of the proliferation of applications that will be made possible. We believe that Spirent can therefore expect robust growth in demand for its services over the coming years.

Petershill Partners

In September 2021, the Company participated in the IPO of Petershill Partners, a capital provider to alternative investment managers, making a £7 million investment. Alternatives (including private equity, private credit and infrastructure investment) are a fast-growing area of asset management, and there are a limited number of specialist providers of growth capital for firms in this space. Petershill has built a diversified portfolio of managers, and with the capital raised as part of the IPO, it will seek to make investments in other alternative managers over the coming years.

We are therefore invested in both the strong underlying asset growth of the existing managed portfolios, and an additional source of growth through new investments. We expect Petershill to see an attractive rate of earnings growth over the coming years.

Attest

In November 2021, the Company completed a $7.0 million investment in leading market research technology platform, Attest, as part of its $64 million Series B funding round. Attest's Series B funding was led by an undisclosed growth investor with participation from specialist tech investment firm Kismet and existing investor, leading global venture capital firm NEA. Attest is the first business services sector investment to enter the portfolio.

Attest has built an intuitive software as a service platform which aims to make checking ideas and actions with target consumers as second nature as checking the time, so every business decision can be grounded in data. Using Attest's technology, surveys can be created and distributed to target consumers in as little as 90 seconds and results are significantly higher-quality, more reliable, representative, and delivered faster than ever previously possible. This self-serve technology is supported by Attest's in-house team of research experts, leading to trustworthy data that brands can rely on.

During the pandemic, Attest has achieved record revenue growth and continued to support and grow its client base, including Microsoft, Santander, Walgreens/Boots, Wise, Klarna, Organic Valley and Fabletics. Attest's consumer reach has also increased, with brands now able to access more than 110 million people in 49 countries. Via Attest, this power is now open to any user, in any business to consumer company, on-demand any time.

This latest financing round is intended to help further accelerate Attest's expansion in both Europe and North America, as well as the company's mission to make high quality research simple, fast and powerful for everyone on a continuous basis.

Top 10

The Company's top 10 holdings as of 30 September 2021 compared with the respective holding as of 30 June 2021.

Holding	Fair value as of 30 June 2021 (£'000)	% of total investments	Fair value as of 30 September 2021 (£'000)	% of total investments
Oxford Nanopore	90,745	26.5%	142,923	34.2%
Atom Bank	40,004	11.7%	40,004	9.6%
Rutherford Health	33,889	9.9%	33,889	8.1%
Immunocore	23,410	6.8%	22,829	5.5%
Benevolent AI	22,390	6.5%	22,390	5.4%
Reaction Engines	12,500	3.7%	12,500	3.0%
Seedrs	9,075	2.7%	11,768	2.8%
AMO Pharma	11,291	3.3%	11,576	2.8%
Revolut	-	0.0%	10,168	2.4%
IDEX ASA	8,008	2.3%	9,132	2.2%

Source: AIFM as of 30 September 2021.

Rutherford Health

In August 2021, Rutherford Health ("Rutherford") made two announcements in relation to material business arrangements. Firstly, the company entered into an agreement under which SDI Holding Limited ("SDI"), representing a UK-based investor, had irrevocably undertaken to subscribe for 19 million new Rutherford ordinary shares at a price of 65p per share to raise gross proceeds of £12.35 million (subject to certain closing conditions). Secondly, Rutherford entered into agreement with The First Investor LLC, part of the Dubai-based Alfardan Group, to acquire all the shares in Proton Partners International Health Care Investments LLC, UAE in consideration for the issue of 64 million new shares in Rutherford subject to certain conditions including satisfactory due diligence to be conducted by both parties, notarial formalities, and formal approval by the Rutherford Board.

In accordance with IPEV Guidelines, which set out the industry standard methodologies for valuation of private capital investments, the NAV reported today is based on information known or knowable on 30 September 2021 and thus the valuation of Rutherford is unchanged from 30 June 2021.

In November 2021, Rutherford also released its unaudited interim results for the six months ended 31 August 2021. During the period, patient numbers decreased ~28% to 166 for cancer treatment and increased ~101% to 4,772 for diagnostics. The company's revenues increased 36% to £4.9 million compared to the first half of FY21 with Proton Beam Therapy revenues remaining unchanged at £1.4 million. The company's operating loss also increased 17% to £18.5 million with a closing cash position of £3.1 million. Rutherford also disclosed that should the investment by SDI not complete in the near term, the Company will require working capital by around the end of November 2021 and accordingly it is exploring alternative options to provide the Group with working capital. We note the following comment from the Notes to the Interim Accounts - "In the event that the investment by SDI does not complete in the very near term and in the absence of alternative funding, the Company may not be able to continue as a going concern. In addition, the Company will require additional future funding before the Group is profitable. The board regularly reviews its financing options and its discussions with potential funders and investors indicate that should the Group require further funding, this would be available, although at this point such funding is not committed. As such a downside scenario detailed above together with the potential for future fundraising not completing indicates the existence of a material uncertainty which may cast significant doubt upon the Group's ability to continue as a going concern". In the light of this, we remain vigilant and in close contact with the company.

For further details of the top 20 holdings, please refer to the Portfolio page on the Company's website which contains links to each portfolio company website with specific updates.

Outlook

The Company continues to be well placed to capitalise on new investment opportunities in both public and private equity markets with a focus on innovative UK businesses with disruptive innovation, significant global growth potential, high quality management teams and supported by highly reputable co-investors. The longer-term ambition being to build a diversified portfolio of venture and growth stage companies across the Company's six core sectors which include Business Services, Consumer, Financials, Health Care, Industrials and Technology.

In the near-term, when required, these new investments will be funded by utilising the credit facility which remains undrawn, but only when the Company has visibility on paying down the incremental borrowing within twelve months. The intention being to maintain a loan balance below 10% of gross asset value and remain prudent when compared with peers. The portfolio manager continues to investigate liquidity options for several companies within the portfolio to support new investment activity in the coming months.

Finally, in the short term we may see further headwinds in the portfolio inherited from the previous portfolio manager. Some of these portfolio companies continue to be loss-making and in need of further financing. The portfolio manager is actively engaged with these companies but intends only to support those companies with further financing which present an appropriate risk/reward profile. Despite this, the continued rebalancing gives us increasing confidence in the portfolio overall.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. The securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

Enquiries:

Schroder Investment Management Limited

Gareth Faith (Company Secretary)	0207 658 5264
Estelle Bibby (Press)	0207 658 3431

 

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