Dear reader
The picture above points to a quieter but more audacious future in 2054, a mere 30 years from now. Give it a watch and turn your speakers up to experience a GROWing sense of optimism about GROW.
For an even more authentic experience of the future, play this retrofuturism video on top of the Molten video. Trust me, it works.
During FY24 (to 31/3/24) GROW invested £65m directly in its portfolio and £37m via its EIS/VCT funds. Another £700m was raised by that portfolio of companies.
Core portfolio companies including ISAR Aerospace, ICEYE, RavenPack, Revolut and Riverlane all raised capital or transacting at increased valuation rounds.
Consider that that period included 15 deals of >£5m. That’s quite impressive!
Then in their trading update to 30/09/24 and given the post period news we can deduce their balance sheet moves to something like this. The discount remains on a wide 52.5% discount.
Fair value movements and portfolio performance:
Total gross portfolio value reduced in the six-month period to 30 September 2024 by £35 million driven by a combined impact of significant realisations, with a modest £20m net uplift (+£110m and -£90m) in the fair value of the existing portfolio, offset by -£30m adverse foreign currency movements.
£76m in realisations rising to £124m post period with M-Files pending regulatory approval. £124m represents ~9% of the prior £1,379 Gross Portfolio Value ('GPV').
Announced realisations include:
M-Files (due to complete pending regulatory approval) via a majority recapitalisation investment and delivering 7.4x multiple on invested capital,
Endomag acquired by Hologic delivering 3.7x multiple on invested capital
Perkbox acquired by Great Hill Partners delivering 1.3x multiple on invested capital and
Graphcore via its acquisition by SoftBank delivering 0.9x multiple on invested capital
So none of the above were at a 52.5% discount or higher! Last I looked 7.4X means 740% of NAV not 47.5%.
Capital deployed during the period was £51m, including the secondary investment to acquire a majority position in Connect Ventures Fund I for £19 million
#1 Thought Machine 53.2p (75p total considering 21.8p net other assets)
Thought Machine sells cloud-based banking systems and counts major lenders including JPMorgan, Lloyds and Standard Chartered among its customers, as well as neobanks like Atom Bank. GROW’s £36.5m investment was at $1bn so a subsequent $160m funding round at $2.7bn valuation means that it is valued at £98.5m today.
In the 2023 accounts we see a 25% growth in recurring revenue.
We also know from Starling that there is a 18-24 month gestation period for banks to come on board, so the 2022, 2023 and 2024 newsflow hasn’t yet hit the recurring revenue.
The banking software called Vault covers 30 countries and is supplemented by extensive integration to other systems giving banking customers vast productivity improvements.
TM Sales Pipeline
2022: BPI in France and C6 Bank in Brazil.
2023: Thought Machine continues its global expansion, winning clients in new territories, including Mexico, Chile, South Korea, Israel, and Guatemala.
2024: India, Indonesia, Mastercard, Afin (a bank specialising in selling Buy to Let mortgages for non-British people who want to invest in UK property)
With this pipeline you can see how revenue growth (and a current 40% - 50% gross margin) will support an IPO which once again is being mooted in the press.
It is my supposition that the implementation gross margin and the recurring SAAS gross margins are vastly different where recurring is likely at 80%-90% levels. So growth is masking the success of Thought Machine to some extent.
#2 Coachhub 49.3p (124.3p total)
Since I last looked at Coachhub an AI engine and MS Office Integration has been introduced.
CoachHub is a digital coaching platform established to help organisations create personalised, measurable, and scalable coaching programmes for the entire workforce, regardless of department and seniority level.
The German platform’s global pool of coaches includes more than 3,500 certified business coaches in 90 countries across six continents with coaching sessions available in over 60 languages.
Serving more than 1,000 clients worldwide, and followed by nearly 100,000 folks on LinkedIn CoachHub’s coaching programmes are based on proprietary scientific research and development from the company’s Innovation Lab.
Funding: $800m Round C in 2022
#3 Aiven 44p (168.3p total)
We are now at 50% of the share price and let’s look at the developer tool kit “Aiven”
We help organisations fuel the continuous innovation needed to create awesome, data-intensive applications by using the leading open source technologies.
Aiven offers a way to simplify open source database management, provide enhanced security and compliance, but crucially enhanced speeds (DB queries exectute about 2-4X faster in postgreSQL).
#4 Ledger 32.8p (201.1p total)
Ledger produces hardware wallets for crypto and related assets. They currently offer a range of products aimed at securing one’s crypto portfolio in an offline physical device preventing bad actors from digitally accessing crypto assets
Once you’ve engaged in the tomfoolery of Crypto then you are in danger of having your digital asset stolen. The safest way to store Crypto is on an offline device such as this. The device is a touchscreen provided by Ledger which offers connectivity into Revolut and other Exchanges. Ah hah, you might think what if lose my Ledger gadget? You buy another and using your security phrase retrieve your missing Bitcoin. Ledger will even sell you a natty case for your Ledger Flex device, so makes money on Crypto-philes. Sales are estimated at around £300m a year based on around 1m devices being sold. If only that chap who threw his $560m bitcoin-laden computer away had had a Ledger device….
#5 Form3 31.7p (232.8p total)
Form3 raised $60m to continue its expansion placing it at a $570m valualation post money which is about 2X the pre-money valuation. It quietly co-operates with and supports other Fintech companies Klarna, Thought Machine and Feedzai. It counts Goldman Sachs, Nationwide, Lloyds Bank, SumUp, Visa and Mastercard among its backers (and therefore customers).
APP fraud losses accounting for nearly £500m per annum, the solution is timely, as it has been developed on the back of new regulation from the Payment Systems Regulator. This sees victims of APP fraud being refunded by their bank from October 2024, with **reimbursement now being the responsibility of both the sending and the receiving institutions**.
Form3’s APP Fraud Solution works by combining Form3’s account-to-account payment processing with Feedzai's fraud and financial crime analytics. This produces a model that is trained to identify risk in both the individual sending the money and the person receiving the money. Understanding who is receiving the money is key to preventing fraud, as APP fraud involves impersonation that manipulates the victim into sending the money.
Form3 recently won the Datos Insights award for best scam prevention innovation.
Growth is expected to continue to rapidly evolve:
#6 Revolut 34.9p* (267.7p total)
Revolut is a global financial services company that specialises in mobile banking, card payments, money remittance, and foreign exchange.
Revolut hit 10m customers in the UK up from 8m at the start of the year and hit the 50m customers globally up from 28m customers reported in a prior OB article 1 year ago!
A key question in my mind was is INOV or GROW the better way to play Revolut?
GROW owns 0.46% of Revolut and holds it at £65.1m (as at last update 31/3/24). But at a $45bn valuation (the price that shares were recently changing hands for) places GROW at a $208m valuation or £160m. So £94.9m higher than the NAV price. That’s an additional 50.9p a share and a 145% upside* (this pretty much gets you to today’s market price, reader)
INOV on the other hand has its Revolut on a £8.7m valuation and £7.3m upside at a $45bn valuation. That’s an 84% upside.
So is GROW the best option if you believe Revolut will IPO at $45bn (or more)? INOV’s Revolut holding is much smaller but INOV’s market cap is smaller too. INOV’s Revolut holding is 10.8% of its market cap, while GROW’s is slightly less at 10.6% of its market cap. But the 145% potential upside tips GROW to being the better pick to get Revolut exposure.
Revolut finally received its UK banking licence so is engaged in its build out of UK banking operations. Revolut recently did a deal with CMC markets on stocks (for the UK) and has a similar arrangement in the US.
If you believe Revolut is worth +51p then you have reached GROW’s market price at this point.
If you consider the rapid growth reported in 2024 but also reported in its last 2023 accounts to 31 December 2023 which detailed 46% customer growth (from 26 million to 38 million), 95% group revenue growth (from £0.9 billion to £1.8 billion) and a profit before tax of £438 million putting Revolut on a FY2023 P/E of about 100, the question could even be is a 2022 valuation appropriate in 2025 when the proof and the growth is so much more advanced?
Does today’s actual plus lower multiple outweigh yesterday’s lower actual and higher multiple? I think my own answer to that rhetorical question is a resolute YES!
Lloyds Bank is roughly a $45bn market cap too. Its net EPS is roughly static over 5 years, revenue static over 5 years. It’s true that it has achieved a ROE of ~10% over 5 years too. When Revolut has already hit its 2024 growth target to 50m customers yesterday (compared to Lloyds 26m customers and that number is static over 5 years too). It’s not just customers which are growing at Revolut but transactions per customer too. While Lloyds has a much lower 13.6% ROTE, earnings growth drops Revolut’s FY26 P/E to about 12X (on a forecast 2026 revenue of $9.3bn according to the WSJ and $100bn by 20240) implying a potential 300%+ valuation upside by 2026 to its $45bn market cap.
Comparing it to a bank fails to capture the difference with Revolut: $300m of revenue will be generated through advertising by 2026 for example. Also considering that Revolut is as much a software as a service (SaaS) company as a Bank then $45bn starts to look extremely reasonable even extremely cheap - if you believe the growth is sustainable.
#7 Aircall 32.4p (300.1p total)
Aircall is a cloud-based call centre and telephony platform for businesses. The voice platform integrates with CRM and helpdesk tools to enhance engagement between businesses and their customers, enabling better customer support and sales engagement. Aircall can be set up in any business with internet access and APIs into over productivity and communication tools. The platform’s powerful analytics engine helps sales teams improve productivity, leaving a valuable and collaborative audit trail.
Funding: $120m Round B in Feb 2023
Update: Aircall recorded 70% YoY growth in revenue and a 107% YoY increase of large customers in the past year.The company has six global offices and over 700 employees. Aircall has been focused on expanding the product offering and has significantly improved the featurerichness, including new modules related to analytics, voice AI, and smart routing. This allows Aircall to keep growing with its current customers as well as deliver an improved customer experience. Aircall crossed the $100m ARR mark in 2022 while maintaining growth at scale, evidencing the large and untapped market in midmarket cloud-based telephony.
#8 ICEYE 23p (323.1p total)
So finally we reach the market cap near enough of 327p (or earlier, if you agree Revolut is worth $45bn like the folks who bought $500m of Revolut at that price recently)
ICEYE operates 38 satellites in low earth orbit using a synthetic-aperture radar to deliver monitoring capabilities for any location on earth from 84,000Km2 in wide angle to 50cm in Spotlight mode. How?
Microwaves. Not using a Popty Ping for all the Welsh readers but using this range of lightwaves to look at the earth, piercing cloud and other obstructions to read the ground. Used by Insurers, governments and other organisations you can rent a satellite or buy bandwidth.
13 new satellites are planned for this year and 10-15 new satellites annually each year thereafer.
The technology helps clients resolve challenges in sectors such as maritime, disaster management, insurance, and finance. In April 2023, ICEYE US was awarded a five-year blanket purchase agreement by NASA to provide radar satellite imagery for evaluation in support of Earth Science and Research. In November 2023, ICEYE announced its landmark partnership with the European Space Agency (ESA) that promises to redefine Earth Observation (EO) for enhanced disaster management and community resilience. As of 2024, ICEYE is also partnering with WWF Finland and the global Arctic Programme to protect whale migration routes in the Arctic region.
In April 2024, ICEYE, announced a definitive agreement signed for an oversubscribed $93M growth funding round (not at a 52.5% discount). The financing will further accelerate investment in constellation of SAR satellites and expand the company’s portfolio of innovative data and subscription products. The round builds on the success of the Series D round in February 2022, bringing the total amount raised to $438M.
Satellite imagery is fast becoming a standardised tool to gain valuable insights across a variety of industries. With the global climate and international defence in focus, governments have leaned heavily on public funded space programs which in more recent years has sparked strong participation from the private sector. ICEYE’s SAR (synthetic aperture radar) satellites enable the company to develop insights without the need for line-of-sight.
In other words ICEYE can see through clouds and offer more reliable data for its clients, including some of the largest global insurance companies and governments. ICEYE has signed deals with the likes of the Centers for Disease Control and Prevention (CDC) in the US and the Australian government to detect natural disasters like floods and bushfires.
Conclusion
There’s a further £3.88 per share of holdings in GROW beyond these holdings, effectively in the price for free. There’s now a chunky £161m of cash and cash eq. (estimated) alongside £60m of unused RCF so £221m of “firepower” to grow GROW.
The interim results are due 20th November so while we know there’s a small 1.5% NAV gain on a constant currency basis, the portfolio realisations have been well above the 52.5% discount rate. The stabilisation and forward outlook appears positive too.
The drop in the share price of about 15% following the announced retirement of Martin Davis seems disproportionate and watching the last Investor Presentation (in June) I did silently notice how Martin deferred to Ben throughout the Q&A. It is my belief that while Martin is a great guy newcomer 42 year old Ben Wilkinson the ex-CFO now CEO is a steady and very experienced pair of hands offering relative youth and vigour to take GROW forwards.
I, for one, am excited for its prospects.
Regards
The Oak Bloke
Disclaimers:
This is not advice
Micro cap and Nano cap holdings including those held within a FTSE250 trust might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"
A value and GROW’th play, cheers mate !!!
Market cap now close to £500m - looking very good value.