“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in GBP
Last close As at 25/03/2023
GBP3.00
▲ −11.60 (−3.73%)
Market capitalisation
GBP476m
Research: Financials
At its capital markets day (CMD) Molten Ventures highlighted its successful growth since it listed in 2016, having grown its gross portfolio value by a CAGR of 59% (supported by several capital raises). We note that Molten posted a six-year NAV total return (TR) to end-September 2022 of c 15% pa. Since IPO, Molten has deployed an average £133m in capital per year (excluding secondary investments) and received £452m in total realisation proceeds. Portfolio growth has been underpinned by the 24% pa growth in European venture capital (VC) series A, B and C deal volumes (Molten’s ‘sweet spot’) between 2015 and 2022 (based on PitchBook data).
Molten Ventures |
Key takeaways from the 2023 capital markets day |
Capital markets day |
Listed venture capital |
21 February 2023 |
Share price performance
Business description
Analysts
Molten Ventures is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||||||||
At its capital markets day (CMD) Molten Ventures highlighted its successful growth since it listed in 2016, having grown its gross portfolio value by a CAGR of 59% (supported by several capital raises). We note that Molten posted a six-year NAV total return (TR) to end-September 2022 of c 15% pa. Since IPO, Molten has deployed an average £133m in capital per year (excluding secondary investments) and received £452m in total realisation proceeds. Portfolio growth has been underpinned by the 24% pa growth in European venture capital (VC) series A, B and C deal volumes (Molten’s ‘sweet spot’) between 2015 and 2022 (based on PitchBook data).
Period |
Plc cash* |
Gross portfolio |
NAV |
NAV/share |
Discount/premium |
03/21 |
160.7 |
983.8 |
1,033.1 |
743 |
9 |
09/21 |
156.2 |
1,350.2 |
1,357.4 |
887 |
12 |
03/22 |
78.1 |
1,531.5 |
1,433.8 |
937 |
(17) |
09/22 |
28.5 |
1,448.9 |
1,279.9 |
837 |
(64) |
Note: *Includes restricted cash but not funds held on behalf of EIS/VCT investors. **Calculated based on share price at respective period-end.
Strategic priorities tailored to the softer market
At the 2023 CMD on 9 February, Molten’s CEO outlined the company’s key priorities (see video recording here). At the holding level, management continues to focus on capital preservation, which we believe is prudent given the visible decline in European VC activity, with Q422 exit volumes down c 80% y-o-y to just €5.1bn, according to PitchBook (see our last update note for a discussion of Molten’s balance sheet). Molten still wants to leverage third-party capital to participate in larger deals and to generate recurring fee income to cover most or all of its ongoing expenses. It aims to launch new structures for third-party capital, such as the growth (ie Series B+) co-investment fund it flagged recently. ESG remains part of Molten’s core DNA, rooted deeply in its investment philosophy and process.
Given the change in market dynamics since late 2021/early 2022, Molten declares it has a ‘laser-like’ focus on securing the capital needs – and extending the cash runway – of its portfolio companies through prudent cost management and driving profitability by maintaining close and active engagement with founders. It also seeks continued targeted growth of its portfolio holdings (at the H123 results release, Molten expected its core portfolio to grow revenues by 62% and 78% in 2022 and 2023 respectively) and allow them to innovate regardless of the economic cycle. Molten will seek to properly manage its portfolio concentration/diversification and look for new investments (though it expects deal volumes to be lower than in 2022 and H123 given the emphasis on capital preservation). It will focus on exits (making sure founders are well prepared when they choose to exit) despite the more challenging exit environment, which PitchBook expects to continue deep into 2023. This should be assisted somewhat by the fact that historically 70% of Molten’s exits have been trade sales rather than public listings (with a pick-up in the latter less likely in the near term).
Valuation
Molten’s shares are trading at a c 52% discount to end-H123 NAV, which compares to a 17% discount at end-FY22 and a 9% premium at end-FY21.
‘Back to the basics’ in the VC market
The tighter market environment requires founders of VC-backed companies to change their mindset from ‘growth at all cost’ to capital efficiency (‘doing more with less’) and profitability to build a sustainable business over a 10- to 20-year period. VC-backed businesses seek to extend their cash runway (through prudent cost management and in some cases, convertible debt issue or bridge funding from existing shareholders) to avoid new funding rounds in a softer pricing environment. Nevertheless, speakers at Molten’s CMD expressed cautious optimism towards the sector’s prospects, given its continued potential to disrupt and solve major real world problems in the long term. A number of high-profile successful businesses (‘sustainable winners’) emerged from previous economic downturns, with examples from the 2008/09 global financial crisis including Trustpilot, Zoopla, Airbnb, Slack, WhatsApp, Uber and Instagram, among others (all founded between 2007 and 2010). The disruption potential within Molten’s portfolio was illustrated by the sectors represented at the CMD, with companies focused on driving innovation in financial institutions (Thought Machine, FintechOS), talent development (CoachHub), cancer diagnosis and treatment (Endomag), internet of things (HiveMQ), construction supplies logistics (Schüttflix), artificial intelligence (MostlyAi), engineering simulation (Simscale), global positioning systems (FocalPoint), satellite technology (SatelliteVu), carbon markets (BeZero) and delivery by air (Manna). Finally, lay-offs at larger, late-stage VC-backed companies have historically been a source of a valuable pool of new founders or employees of early stage businesses (‘recycling of talent’) and in turn, opportunities for early stage VC investors.
The cautious optimism evident at Molten’s CMD seems to be confirmed by the findings of PitchBook’s recent Annual European Venture Report 2022, which suggests that (despite the general shift in risk appetite) investors have remained predominantly bullish on the VC sector, citing lower valuations and more limited competition as the dynamics that will improve opportunities, deal terms and potential returns. However, non-traditional VC investors (corporates, financial institutions including investment banks, private equity (PE) firms, sovereign wealth and pension funds, hedge funds etc) may turn to earlier stage VC companies (several years from an exit) to shield themselves from near-term volatility. Deal value across the European VC market remained relatively resilient in 2022 at €91.6bn (down c 16% y-o-y but up 85% versus 2020). While Q422 deal volumes of €12.8bn were 54% below Q421, they represented only an 8% decline from Q420 and Molten’s CEO highlighted that ‘landmark’ deals are still being completed. In this context, we note that the European VC market has been gradually closing the gap with the US VC market, with the 2022 European deal value representing c 41% of the US deal value versus 34% in 2017 and 24% in 2012 (according to our calculations based on PitchBook data). Interestingly, European VC general partners were still able to raise €25.4bn in 2022, almost the same amount as in 2021 (€25.3bn), even if for a lower number of funds (212 vs 305), according to PitchBook. Having said that, PitchBook expects capital allocations to VC to moderate in 2023, partly due to the denominator effect stemming from a more significant decline in public equities valuations compared to PE/VC assets.
Click here to enter text.
|
|
Research: Investment Companies
Gresham House Energy Storage Fund (GRID) invests in utility-scale battery energy storage systems (BESS) in Great Britain and Ireland. The company seeks to capitalise on the growing intraday imbalances in electricity supply and demand caused by the UK and Ireland’s ever-increasing reliance on renewable energy, by accessing multiple revenue sources available in the power market. GRID targets an NAV total return of 8.0% + per annum and it has significantly overshot this target since its inception in November 2018, having delivered an NAV total return of 84.1% and a share price total return of 100.5%, compared to an 11.8% rise in the broad UK market in the period to end-September 2022. Further NAV uplifts are expected in 2023 and 2024 as the fund’s pipeline of projects is commissioned and revalued accordingly. And manager Ben Guest has plans for further rapid expansion of the fund’s operational capacity, including in Europe, the US, Canada and Australia, over the longer term. GRID pays an attractive dividend, which is set to rise in line with revenues.
Get access to the very latest content matched to your personal investment style.
