Investing In Ideas

FY21 results, £111m placing and retail offer

Draper Esprit 22 June 2021 Update
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Draper Esprit

FY21 results, £111m placing and retail offer

FY21 results

Listed venture capital

22 June 2021

Price

875p

Market cap

£1.34bn

Net plc cash (£m) at 31 March 2021

160.7

Shares in issue

153.0m

Free float

91%

Code

GROW

Primary exchange

AIM

Secondary exchange

Euronext Growth Dublin

Share price performance

%

1m

3m

12m

Abs

12.8

2.2

94.4

Rel (local)

12.1

(2.9)

68.4

52-week high/low

893p

444p

Business description

Draper Esprit is a London-based venture capital firm that invests in the European technology sector. It has a portfolio of c 70 investee companies and includes a range of funds (seed, EIS and VCT) within the group, as well as its flagship balance sheet VC fund.

Next events

AGM

July 2021

Interim results

November 2021

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Draper Esprit is a research client of Edison Investment Research Limited

Draper Esprit reported a very strong FY21, with a 51% increase in gross portfolio value (GPV) to £984m and a 57% rise in NAV to £1.03bn, together with realisations and exits at a record £206m. As at 31 March 2021, plc cash stood at £160.7m. Immediately following the results, management announced a placing and retail offer raising £111m at 800p per share, a 5% discount to the closing price on 11 June 2021 of 839p per share and an 8% premium to the latest NAV of 743p per share, as at 31 March 2021. The cash raised will be used to increase Draper Esprit’s rate of investment to over £150m pa. Following the raise, net of £48m of post year-end investment, we estimate that Draper Esprit has net cash of over £215m.

Period
end

Plc cash*
(£m)

Gross portfolio value (£m)

NAV
(£m)

NAV/share
(p)

P/NAV
(x)

03/19

50.4

594.0

618.6

524

1.67

03/20

34.1

702.9

659.6

555

1.58

09/20**

62.1

702.4

714.7

600

1.46

03/21

160.7***

983.8

1,033.1

743

1.18

Note: *Includes restricted cash but not funds held on behalf of EIS/VCT investors. **H121 interim results. ***Post period-end, the company raised £111m (gross) and invested £48m.

FY21 results: Strong growth, strong returns

In its FY21 results, Draper Esprit confirmed an NAV/share as at 31 March 2021 of 743p, a 24% uplift on its H121 NAV/share of 600p and a 34% increase over 12 months (FY20: 555p). As at 31 March 2021, Draper Esprit held plc cash of £160.7m (including £2.3m restricted cash) (31 March 2020: £34.1m), with positive net realisation (realisations of £206m, less investments of £128m), enabling the group to repay its £45m revolving credit facility (RCF). Net operating costs (net of fee income) remained below management’s target of 1% of NAV.

Placing and retail offer raised £111m (gross)

In total, on 14 June 2021, Draper Esprit placed 13.9m new ordinary shares (c 10% of the existing share capital) at a price of 800p per share, raising gross proceeds of £111.2m. The placing included a retail tranche of 0.6m shares, offered through Draper Esprit’s portfolio company PrimaryBid. The company intends to use the proceeds to commit more capital to investment (over £150m annually), leading more rounds and participating in larger rounds. The placing was oversubscribed. Draper Esprit also confirmed that it intends to move its listing to the premium segment of the Main Market in the next few months and, at today’s valuation, should qualify for inclusion in the FTSE 250 index.

Valuation: A premium VC, offering scale and liquidity

With a 34% rise in NAV in FY21 and a five-year NAV/share CAGR FY16–21 of 18.7%, Draper Esprit has demonstrated why it warrants a premium as a rapidly scaling leader in the technology VC sector. Draper Esprit trades at 1.18x FY21 NAV, and having raised a fresh tranche of capital, is ready to continue to scale its business ahead of a potential listing on the Main Market. Given the group’s strong 51% GPV growth in FY21, management is prudently guiding towards slower 15% GPV growth in FY22 as management targets 20% growth through the economic cycle.

FY21 results: Strong growth drives strong returns

FY21 was characterised by an accelerated transition to digital, as a result of the COVID-19 pandemic, supported by technology companies as enablers of remote working and the digital economy more broadly. These trends benefited the sorts of companies in which Draper Esprit invests: companies with recurring revenue streams, remote networking facilitators, cloud native applications, providers of security infrastructure, automation and e-commerce companies.

This led to strong value growth in the portfolio with GPV rising by 51% y-o-y to £984m (31 March 2020: £703m), with a net fair value uplift of £276m. Net assets increased by 57% to £1,033m (31 March 2020: £660m), with net asset value (NAV) per share of 743p as at 31 March 2021, a 34% y-o-y uplift (FY20: 555p). Net portfolio value fell to 88% of GPV in FY21 from 93% in FY20, reflecting a greater contribution from fund investments, with a higher carry than the 15% carry standard on the group’s direct investments, underlining the success of Draper Esprit’s fund of funds strategy.

Income principally comprised £276.3m of investment gains (FY20: £40.8m), together with fee income from management fees and directors’ fees of £12.5m (FY20: £11.3m). FY21 G&A costs rose to £13.8m (FY20: £9.8m) as the Draper Esprit team grew and its infrastructure was scaled, but net operating costs (FY21: £1.3m)) (net of fee income) remained comfortably below 1% of NAV (a management target), with the rise in both net income and NAV over the year.

As at 31 March 2021, Draper Esprit held plc cash of £160.7m (including £2.3m restricted cash) (31 March 2020: £34.1m), with positive net realisation (realisations of £206m, less investments of £128m) enabling the group to repay its £45m revolving credit facility (RCF). Cash proceeds included realisations of Peak Games, TransferWise and Decibel, as well as partial realisations of Trustpilot and a pre-IPO secondary sale of Draper Esprit’s holding in UiPath.

Post year-end, Draper Esprit invested a further £48m (to 11 June 2021), including investments in Manna, FintechOS, Cervest, Ledger and Lyst. Together with the net proceeds from the placing and retail offer (£111m gross), we estimate a net cash increase of c £60m as at 11 June 2021, implying total plc cash of c £215m. The RCF was also extended to £65m and remains undrawn.

Portfolio update

Exhibit 1: A balance between initial and follow-on investment

Source: Draper Esprit

Draper Esprit’s core portfolio has increased from 16 companies to 17 companies, representing 68% of GPV. New companies that have joined the core portfolio include Lyst, Endomag and Freetrade, with ICEYE falling below the threshold for inclusion.

Exhibit 2: 17 members of the core portfolio

Exhibit 3: The core portfolio is 68% of GPV

Source: Draper Esprit

Source: Draper Esprit

Exhibit 2: 17 members of the core portfolio

Source: Draper Esprit

Exhibit 3: The core portfolio is 68% of GPV

Source: Draper Esprit

GPV as at 31 March 2021 reached £984m (31 March 2020: £703m), with cash proceeds of £206m from realisations (including escrows) during the period. Draper Esprit committed £128m of investment, with a gross change in fair value of £359m, despite strong currency headwinds leading to a £51m foreign exchange loss. Draper Esprit targets 20% gross portfolio returns through the economic cycle (FY21: 51%) as well as 10–15% realisations through the cycle (FY21: 29%).

Exhibit 4: Investment portfolio summary

£m

Fair value of investments

Investments

Realisations

FX movement

Change in fair value

Total change in fair value

Fair value of investments

Proportion of GPV

Cumulative share of GPV

31 Mar 2020

FY21

FY21

FY21

FY21

FY21

31 Mar 2021

%

%

1

Graphcore

86.8

10.3

(7.5)

19.2

11.7

108.8

11.1%

11%

2

UiPath

28.0

(5.3)

(6.8)

84.4

77.6

100.3

10.2%

21%

3

Trustpilot

65.3

(75.0)

95.2

95.2

85.5

8.7%

30%

4

Aiven

12.8

(3.1)

35.8

32.7

45.5

4.6%

35%

5

Ledger

17.7

(2.9)

27.0

24.1

41.8

4.2%

39%

6

Lyst

10.8

(2.4)

26.7

24.3

35.1

3.6%

42%

7

Aircall

24.3

(1.6)

10.1

8.5

32.8

3.3%

46%

8

RavenPack

30.9

(2.1)

1.1

(1.0)

29.9

3.0%

49%

9

M-files

20.0

1.5

(1.6)

9.8

8.2

29.7

3.0%

52%

10

Cazoo

10.3

15.4

15.4

25.7

2.6%

54%

11

Smava

16.7

(1.6)

8.7

7.1

23.8

2.4%

57%

12

Revolut

21.7

(1.5)

0.2

(1.3)

20.4

2.1%

59%

13

Freetrade

4.0

16.0

16.0

20.0

2.0%

61%

14

Perkbox

19.9

(1.3)

(1.3)

18.6

1.9%

63%

15

SportPursuit

11.1

7.4

7.4

18.5

1.9%

65%

16

Thought Machine

17.4

1.0

1.0

18.4

1.9%

67%

17

Endomag

6.9

7.0

1.8

1.8

15.7

1.6%

68%

Core portfolio

390.3

33.1

(80.3)

(31.1)

358.5

327.4

670.5

68.2%

68%

Remaining portfolio

310.8

94.9

(125.4)

(20.1)

50.5

30.4

310.7

31.6%

100%

Total

701.1

128.0

(205.7)

(51.2)

409.0

357.8

981.2

99.7%

Co-investment

1.8

(0.6)

1.4

1.4

2.6

0.3%

Gross portfolio value

702.9

128.0

(206.3)

(51.2)

410.4

359.2

983.8

100.0%

Source: Draper Esprit

Fund of funds: A successful strategy for the group

Draper Esprit committed capital to a further 15 funds in FY21, bringing its overall commitments to 35 seed funds as at 31 March 2021. This network provides access to seed stage companies, as well as supporting specialist deal flow across Europe. New FY21 portfolio companies Cazoo and Hopin originated through this network.

New fund commitments included regional funds such as Icebreaker II (Nordics) and Draper B1 (Spanish start-ups), as well as thematic investors, including Atelier (passion economy) and Quatonation (quantum computing). Draper Esprit also invested in the latest funds of existing fund managers including Seaya Ventures III, Icebreaker II, Stride II, Seedcamp V and Amaranthine fund II. The seed fund of funds programme now includes several impact or sustainable funds.

Engagement with ESG and sustainability

FY21 was a formative year for Draper Esprit in framing its environmental, social, and governance (ESG) policy, but the group aims to continue to use its platform in venture capital to encourage and promote its environmental, social and governance values.

Exhibit 5: Draper Esprit’s ESG achievements in FY21

Source: Draper Esprit

For FY22, the group has finalised four ESG key performance indicators (KPIs), which will be combined to form a single headline business KPI linked to all staff and executive remuneration.

The group’s four ESG KPIs for FY22 are:

1.

Environment – establish a roadmap to make Task Force on Climate-related Financial Disclosures (TCFD) disclosures in the FY22 cycle.

2.

Social – create and implement a group-wide Diversity and Inclusion Policy and a Board Diversity and Inclusion Policy.

3.

Governance – strategically engage with 10–15 portfolio management teams on their governance arrangements.

4.

All-encompassing – provide a training programme for the investment team in applying ESG policy to Draper Esprit’s investment process.

Further details can be found in on pages 60–70 of Draper Esprit’s FY21 annual report and accounts.

Outlook: Positive technology trends underpin FY22

After its record year in FY21, Draper Esprit continues to target 20% fair value growth through the cycle, but given the 51% growth achieved in FY21, management is prudently targeting a lower return of 15% in FY22. Draper Esprit remains confident in the outlook, intending to increase its investment cadence to over £150m annually from FY21 (potentially rising to as high as £200m of investment in FY22 following the latest placing). By moving to the premium segment of the Main Market, Draper Esprit hopes to join the FTSE 250, attracting index funds and enabling the group to tap a wider and deeper pool of capital to support future growth.

Draper Esprit intends to continue to scale its model and strengthen its team, investing in infrastructure and processes to enhance deal flow and grow its third-party funds business. Specifically, Draper Esprit intends to:

Stay invested for longer and participate in larger funding rounds as European technology companies mirror US investment trends.

Establish a growth stage (Series B+) co-investment fund, using third-party funds to leverage its balance sheet .

With a stronger balance sheet, potentially supported by a potential co-investment fund, Draper Esprit wants to lead more rounds.

Invest in Earlybird Fund VII, targeting Series A investments in Germany and Europe.

Continue to invest in its Fund of Funds programme, securing deal flow at the seed stage.

Valuation: Potential for NAV uplift in FY21

As an investment company, Draper Esprit’s financial performance centres around its balance sheet, the growth in fair value of its investment portfolio (FY21: 51%), the resultant growth in net assets (FY21: 57%) and NAV per share (FY21: 34%), and the cash resources available (c £215m) to allow the group to continue to fund its portfolio companies to maturity and exit.

After a very strong FY21 resulting in a five-year NAV/share CAGR FY16–21 of 18.7%, Draper Esprit has demonstrated why it warrants a premium as a rapidly scaling leader in the technology VC sector. Draper Esprit trades at 1.18x FY21 NAV, and having raised a fresh tranche of capital, is ready to continue to scale its business ahead of a listing on the Main Market and the potential launch of a co-investment growth fund in FY22. Catalysts for a re-rating include further scaling of the business, the listing on the Main Market, growth in third-party fee income and successful exits and IPOs.

Exhibit 6: Financial summary

£'000

FY17

FY18

FY19

FY20

FY21

31-March

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Change in unrealised gains on investments

35,744

66,603

114,715

40,755

276,307

Fee income

1,673

7,163

6,101

11,255

12,507

Revenue

 

 

37,417

73,766

120,816

52,010

288,814

Cost of Sales

-

-

-

-

-

Gross Profit

37,417

73,766

120,816

52,010

288,814

Operating costs

(3,832)

(5,945)

(7,937)

(10,330)

(14,494)

Investment and acquisition costs

-

(424)

(207)

(239)

(262)

Normalised operating profit

 

 

33,585

67,397

112,672

41,441

274,058

Amortisation of acquired intangibles

-

-

-

-

-

Exceptionals

-

(229)

(34)

-

94

Share-based payments

(4,551)

(4,896)

(3,089)

(990)

(1,548)

Reported operating profit

29,034

62,272

109,549

40,451

272,604

Net Interest

-

112

120

(1,302)

(1,809)

One-off items (incl FX)

221

(1,530)

1,481

1,234

(3,348)

Profit Before Tax (norm)

 

 

33,806

65,979

114,273

41,373

268,901

Profit Before Tax (reported)

 

 

29,255

60,854

111,150

40,383

267,447

Reported tax

(438)

43

11

(17)

(26)

Profit After Tax (norm)

34,309

65,931

114,262

41,390

268,901

Profit After Tax (reported)

28,817

60,897

111,161

40,366

267,421

Minority interests

(330)

(3,131)

(582)

(659)

-

Discontinued operations

-

-

-

-

-

Net income (normalised)

33,979

62,800

113,680

40,731

268,901

Net income (reported)

28,487

57,766

110,579

39,707

267,421

Basic average number of shares outstanding (m)

32

65

96

118

129

EPS - basic normalised (p)

 

 

105.4

96.6

118.4

34.5

208.7

EPS - diluted normalised (p)

 

 

103.8

95.9

113.6

33.7

207.3

EPS - basic reported (p)

 

 

88.4

88.9

115.1

33.6

207.5

Dividend (p)

-

-

-

-

-

Revenue growth (%)

97.1

63.8

(57.0)

455.3

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

Normalised Operating Margin

89.8

91.4

93.3

79.7

94.9

BALANCE SHEET

Fixed Assets

 

 

116,716

242,629

572,658

669,379

879,392

Intangible Assets

10,335

10,232

10,130

10,028

10,936

Tangible Assets

152

229

209

1,760

1,368

Investments

105,971

231,910

562,061

657,333

867,088

Investments in Associates

258

258

258

258

-

Current Assets

 

 

25,419

61,481

51,498

41,857

164,377

Stocks

-

-

-

-

-

Debtors

527

4,840

1,140

7,719

3,700

Cash & equivalents

24,892

56,641

50,358

32,255

158,417

Restricted cash

-

-

-

1,883

2,260

Current Liabilities

 

 

(1,548)

(2,948)

(4,959)

(5,396)

(9,990)

Creditors

(1,548)

(2,948)

(4,959)

(5,038)

(9,645)

Tax and social security

-

-

-

-

-

Lease liabilities

-

-

-

(358)

(345)

Short term borrowings

-

-

-

-

-

Other (incl deferred consideration)

-

-

-

-

-

Long Term Liabilities

 

 

(716)

(651)

(631)

(46,222)

(638)

Long term borrowings

-

-

-

(44,636)

393

Lease liabilities

-

-

-

(975)

(669)

Other long term liabilities

(716)

(651)

(631)

(611)

(362)

Net Assets

 

 

139,871

300,511

618,566

659,618

1,033,141

Minority interests

104

2,792

234

-

-

Shareholders' equity

 

 

139,767

297,719

618,332

659,618

1,033,141

CASH FLOW

Op Cash Flow before WC and tax

33,712

67,557

112,835

41,961

274,708

Revaluation of investments held at fair value through P&L

(35,744)

(66,603)

(114,715)

(40,755)

(276,307)

Working capital

(42,306)

(62,249)

(212,927)

(61,750)

74,684

Exceptional & other

(438)

(74)

97

(17)

68

Tax

28

(107)

(32)

(3)

(2)

Net operating cash flow

 

 

(44,748)

(61,476)

(214,742)

(60,564)

73,151

Capex

(166)

(155)

(58)

(368)

(143)

Acquisitions/disposals

-

-

-

-

(650)

Equity financing

69,665

95,086

207,496

292

104,285

Dividends

-

-

-

-

-

Other

-

(49)

-

-

-

Net Cash Flow

24,751

33,406

(7,304)

(60,640)

176,643

Opening net debt/(cash)

 

 

0

(24,892)

(56,641)

(50,358)

12,381

FX

221

(1,530)

1,481

1,234

(3,348)

Other non-cash movements

(80)

(127)

(460)

(3,333)

(2,104)

Closing net debt/(cash)

 

 

(24,892)

(56,641)

(50,358)

12,381

(158,810)

Closing net debt/(cash) (inc restricted cash)

 

(24,892)

(56,641)

(50,358)

10,498

(160,470)

Source: Company accounts, Edison Investment Research

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New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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