Schroders Capital Global Innovation (INOV)
08/04/2024
Results analysis from Kepler Trust
Intelligence
Schroders Capital Global
Innovation (INOV) has released its financial results for the year
ending 31/12/2023. Over the year, the trust saw its NAV per share
decrease by 11.2% on a total return basis, which compares to an
average total return of -4.8% for the AIC Growth Capital
sector.
Whilst the overall returns
were negative, the final quarter of 2023 saw a recovery driven by
positive developments in Autolus Therapeutics. Detractors primarily
came from the public equity holdings.
The managers have continued
to reprofile the trust including the disposal of legacy holdings,
adding companies under the new strategy and progress existing
holdings towards profitability. There were six new investments in
private companies evenly split across the life sciences, venture
and growth strategies.
The managers made four exits
as well as notable reductions in two more. This activity raised c.
£32.8m of which £22.8m was allocated to six new holdings and c. £7m
to buybacks.
The board have committed to
significant share buy backs with a goal to buy back at least 5% of
the shares each year. The discount narrowed by nearly four
percentage points to 42.1% at year end.
Chair Tim Edwards believes
the final quarter represents the beginning of recovery, stating
"The increase in net asset value in the last quarter of the year
and the positive news flow … both indicate that momentum is
beginning to turn in favour of growth in the new investments in the
portfolio".
Kepler View
Tim Creed and Harry Raikes,
co-managers of Schroders Capital Global Innovation (INOV), have
continued the journey of transitioning the portfolio to
predominantly private equity. This will then consist of companies
mostly in the tech and healthcare industries and split across three
strategies: venture, growth and life-sciences.
The managers have three main
goals: reducing legacy holdings, developing the existing portfolio,
and making investments that meet the new strategy. The first of
these has resulted in four disposals, and two partial sell downs in
the year. There have been six new positions in the period, split
equally across the venture, growth and life-sciences strategies,
all of which were unquoted companies. This activity has tilted the
portfolio towards the goal of being predominantly a private equity
vehicle.
The development of the
existing portfolio has seen a focus on profitability and cash
runway. Nearly 30% of portfolio companies were profitable, with
another c. 32% having enough cash for two years of operations. This
has arguably gone some way to de-risking the portfolio. Financing
has become more challenging, therefore this has helped to mitigate
risks in our opinion.
NAV over the year was
negative, though the positive last quarter arguably reflects a
turning point. This was largely driven by Autolus Therapeutics, but
since the period end, portfolio holding Carmot Therapeutics was
also taken over adding 2.6% to NAV. We believe these holdings
demonstrate the upside potential of the
portfolio.
Whilst the trust has seen
some challenging periods, the managers argue that the new strategy
is beginning to deliver on its potential. However, the discount
remains wide at 42.1% despite the significant share buy backs. We
think that this discount looks interesting, especially considering
the buybacks, whilst the NAV could offer upside potential from
further growth and corporate activity.
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