Discount Opportunity For Augmentum Fintech

Augmentum Fintech (LON: AUGM) is an unusual investment trust that provides exposure to a concentrated portfolio of high growth private fintech companies. It has just released its annual results for the year to the end of March, which suggest that an interesting discount opportunity has opened up in its shares.

According to the accounts, the NAV per share rose by 2.4% over the period to 158.9 pence. This included a cash balance of £38.5m, which subsequently increased to £50m at the end of June – a figure that is equivalent to 29.3p per share − following the fund’s exit from Cushion.

Despite the solid performance, the shares currently trade at 108 pence, which puts them on a discount to NAV of 33%, a figure that would be even higher if you adjust for the underlying cash. Obviously there is a lot of scepticism about private equity valuations at the moment, especially with interest rates where they are, but the fund definitely warrants a closer look.

Strong Underlying Performance

AUGM has a highly concentrated portfolio of around 25 holdings within the European fintech sector, the ten largest of which account for about 70% of the assets. The operational performance of the various companies has held up well, with healthy revenue growth during the reporting period more than offsetting the reduction in the PE multiple.

Interactive investor’s acquisition by abrdn completed in May 2022, resulted in proceeds for the fund of £42.8 million, delivering an 11.1x multiple on the invested capital. This was followed by the purchase of Cushon’s majority shareholding by NatWest Group post year end that brought in a further £22.8m, which was equivalent to just over twice the amount the fund had invested.

There have now been five exits from the portfolio since inception, all at or above their last reported value that have realised a cumulative £79.5m in proceeds, an impressive £53.5m more than their original cost. The funding requirements have been more modest, with an additional £19.9m invested during the financial year in two new companies and eight existing investments.

Outlook

The board have been actively repurchasing shares, with 5.8m bought back during the period at an average discount of 34.1%, equivalent to 3.2% of the opening share capital. Since the end of March a further 3.9m have been acquired, with the directors committed to continue the programme, subject to the need to retain sufficient capital to invest in new and existing opportunities.

Numis believe that the results highlight a solid period of performance for Augmentum, despite a challenging market backdrop.The broker says that it has a unique mandate amongst London-listed funds and that it is well-placed to exploit the rapid growth potential of European fintech companies, which are seeking to disrupt the business models of traditional banking and financial services.

They have a high regard for the management team and describe the fund as an attractive long-term investment, although the early-stage nature of the companies means that it may not always be a smooth ride for investors. For those who are comfortable with the high risk it appears that the current wide discount represents a decent opportunity.