Mixed results for Augmentum Fintech creates possible buying opportunity

Augmentum Fintech has an interesting portfolio of early-stage European Fintech businesses, but a write-down in the value of its investment in peer-to-peer (P2P) lender Zopa has left the shares on a nine percent discount.

The £131.4m specialist investment trust Augmentum Fintech (LON:AUGM) has just released its accounts for the six months ended 30 September. It was a mixed period for the fund, with total upward revaluations of £14.9m across its holdings being largely offset by a £10.3m decrease in the value of its position in Zopa.

Augmentum holds a diversified portfolio of high growth fintech companies that is valued at £101m and boasts a cash pile of £29m, which gives it a NAV per share of 112.2 pence. Over the last 12 months the shares have traded at an average premium of one percent, but they are currently available on a nine percent discount after a sell-off following the results announcement.

The 47% reduction in the March carrying value of Zopa was triggered by the pricing of the company’s recent £140m funding round. This was a challenging exercise given the uncertainty surrounding Brexit and the poor performance of its listed P2P peers, but will give the business the required capital to launch its own bank. Zopa now represents nine percent of the company’s NAV and the fund believes that it will still deliver “a compelling return over time”.

Gains across the portfolio

Most of the gains during the period were from investment platform provider Interactive Investor; UK challenger bank Tide; Monese, which provides banking services to those who work abroad and need a local bank account; and Bullion Vault, which allows investors to buy and store physical gold.

During the six-month reporting period the fund reviewed more than 430 possible deals, but made only two new investments. These were in Habito, the UK’s only online mortgage broking and lending platform; and Grover, the German technology rental platform. There were also four follow-on investments in Tide, Duedil, Monese and Previse.

The chairman says that the pipeline of opportunities in fintech remains strong and that Augmentum was able to raise an additional £25.8m in the period to provide funding for the best of them. He believes that they are well positioned to take advantage of the significant growth in fintech that is expected in the future.

The UK will continue to be the centre of European fintech

Augmentum believes that the UK will continue to be the centre of European fintech regardless of the Brexit outcome, although there is clearly a risk that the situation will change. It is also worth noting that the trend of private companies to stay private for longer fits well with their investment policy of supporting early-stage businesses.

The fund has a unique mandate among London-listed investment trusts and seems well-placed to benefit from the growth potential of European fintech companies, which are seeking to disrupt the business models of traditional banking and financial services.

Numis has a high regard for the management team, which is headed by Tim Levene, and considers the fund to be an attractive long-term investment, although there is no getting away from the fact that the early-stage nature of the holdings will inevitably create some volatility. Those who are comfortable with this may see the recent weakness as a decent buying opportunity.