Augmentum Fintech 31 March 2020

Augmentum Fintech (LON:AUGM) aims to generate capital growth over the long term through investing in fast-growing and high-potential financial services technology businesses based predominantly in the UK and continental Europe.

Currently the portfolio constitutes investments in 18 companies, loosely grouped into banking services, ‘rails & infrastructure’ and asset/wealth management. This is in line with the objectives made at launch, with the anticipated number of holdings being between 15 and 20.

The managers of the trust are Tim Levene, Richard Matthews and Perry Blacher. They provided an update on the portfolio on 20 March, discussing the potential impact of COVID-19 on a number of their investee companies. They noted that companies representing c. 40% of NAV have experienced higher demand than in previous months.

As with any portfolio, there are likely to be those negatively and positively affected by the current crisis. Given the likely fall in overall business activity, our view is that it is perhaps fair to say that Zopa and iwoca – as lenders – could potentially be negatively affected by business failures. On the other hand, BullionVault and Grover look likely to be beneficiaries.

AUGM formally values its portfolio twice a year, the next valuation date being 31 March 2020, with the results expected to be announced in mid-June. The share price has been seriously impacted by recent market falls so that the discount, compared to the 30 September 2019 NAV, has reached c. 50%. The board has very recently exercised its buy-back powers for the first time, and bought back 50,000 shares.

AUGM has a unique investment mandate and, as we illustrate in the Portfolio section, offers exposure to an exciting area over the medium to long term. At the time of the interims, AUGM commented that it had achieved an IRR of 19% on capital deployed since IPO. The difference between this rather impressive IRR and the NAV total return since launch of 13% (total, not per annum) can be accounted for by the cash drag. Relative to UK equities, this represents a good performance. However, it remains to be seen how the picture will change once the NAV at 31 March 2020 is announced (hopefully in mid-June).

Private-company investing is a long-term game, and it is hard to have an objective view of the success of the strategy over anything less than five years. Clearly, the short-term uncertainty is having a significant effect on the price, but the long-term drivers of the NAV will depend on whether the small, nimble companies in the portfolio can disrupt the incumbents in their markets, or create entirely new ones.

The current discount of c. 50% provides a certain margin of safety. However, it is worth noting that most of the underlying companies are loss-making, and will likely require further investment to be made profitable. As we discuss in the Gearing section, AUGM has cash of c. £14m (10% of assets) to support portfolio companies, plus permission to gear up to 10% of NAV.