Dear reader
VPC is in a period of wind down. Its dividend on a “headline” basis one of the strongest on offer at 15.3% but is that good value for money? Is it “real” and sustainable? Should existing shareholders hold on, average down, or exit?
VPC’s monthly reports give little scattered clues but each are partial pictures to the mechanics driving the share. But taking a line in the sand from the June report we can see since June 2023 the NAV of VPC Speciality has declined by £30.6m. (£262m falling to £231m)
This has been driven by capital losses in equity in ecommerce and fintech and these appear to be:
A write down of Heyday Technologies Inc: 4.74% March 23 (of £265m NAV) = £12.56m holding. Now in Jan 24 valued at £1.28m so an £11.28m loss.
A write down of West Creek Financial: 2.4% March 23 = £6.36m. Now in Jan 24 valued at £2.55m so is a £3.81m loss.
Three capital returns i.e. dividends (July/Sep/Nov) of £5.5m each totalling £16.5m.
In rough terms that’s a 6p per share loss for ecommerce equity, a 6p “loss” for dividends. Interesting we see there must have been a 6p per share reduction of debt since the split of assets in Jan 24 remains nearly static to how it stood in June 2023.
The positives:
Paying down about 6p/share of debt at 3.95% + 1m Libor = 8.5% interest and equates to a £1.5m saving per annum with a further £3.5m saving once all debt is repaid. Higher interest rates obviously have been a £3m-£4m per annum drag and impacted VSL.
Whilst there have been Capital Losses there have also been strong revenue returns. In 2023 there was a 13.93% gross return (and 0.7% in Jan 24). Whilst revenue returns will reduce the latest chart shows 2024 should still deliver 90% of gross returns (12.5%) and 2025 around 70% of those gross returns (9.8%).
The “Top 10” equity positions total £47.7m. As a proportion of NAV that’s 20.6% and the remaining 8 are steady so arguably the “bad news” is now in the price. HeyDey is in Chapter 6 bankruptcy but there’s £1m left in valuation so is no longer material (but still may offer some upside if it can successfully trade out of chapter 6, or get acquired)
In fact the January report brings positive news of HeyDey’s peers forming a merger of Razor and Perch (creating a $1bn turnover Unicorn). Also VSL’s sale of Bakkt at a profit was well timed as post sale Bakkt fell by over 80% so nice one VSL!
Arguably, too, the US macro story of a soft landing, strong jobs growth, interest rates probably falling by June all bode well for these equities. For example recently an ecommerce company like Klarna is mooted for a $20bn IPO which is 3X its current valuation so it is not inconceivable ecommerce and fintech assets have upside from here.
Post Period L&F aka ZFox was acquired at a 45% premium. On its £5.94m holding that’s a £2.67m gain to be realised in the “next few months”.
L&F isn’t the only one. There remains the possibility (probability) of its largest holding WeFox also moving to IPO in 2024 or 2025. Key people have been appointed and the ducks are being put in a row. Given the positive newsflow of growth and expansion at WeFox this is likely to be at a premium. It is notable that CHRY may look to take WeFox off VSL’s hands some time soon. They did something similar with Jupiter’s holding of Starling and are positive about WeFox.
VSL confirm they have agreed a capital return mechanism for shareholders and will share news of that “soon”.
Overall, today’s market cap of £147.5m offers an attractive discount. Assuming dividends in 2024 and 2025 and Q1 2026 that returns £49.5m so £98m for £231m of assets puts this at a 58% discount where the remaining assets appear to be stable, realisable and with potential for (and actual) upside. Despite a fairly bumpy 2023 for VSL, this seems centred on one piece of bad news (HeyDey going into Chapter 6). The consequential drop in share price opens up an unwarranted discount in my view.
This is not advice.
Oak
Agree