IP Group — Several potential portfolio catalysts on the horizon

IP Group (LSE: IPO)

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Research: TMT

IP Group — Several potential portfolio catalysts on the horizon

IP Group’s NAV declined by 13% in total return (TR) terms in FY23, affected by continued soft valuations across venture capital (VC) markets, as well as funding delays at some of its holdings. That said, management indicated that many of IP Group’s portfolio companies continued to make strong progress. Its maturing portfolio offers a number of potential NAV triggers and is now available at a wide 59% discount to NAV. We note that, as at end-2023, only 14% of IP Group’s portfolio was valued based on funding rounds completed more than 12 months ago and 46% of its private portfolio was valued by a third-party specialist. IP Group’s holding-level liquidity was solid, with gross cash of £227m (or 19% of NAV) and 87% of its portfolio holdings (by value) had a cash runway to 2025 or beyond.

Milosz Papst

Written by

Milosz Papst

Director, Financials

TMT

IP Group

Several potential portfolio catalysts on the horizon

Outlook

Investment companies
Listed venture capital

17 April 2024

Price

47.15p

Market cap

£489m

Net cash (£m) at end-2023

91.7

Shares in issue

1.03bn

Code

IPO

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.7)

(13.0)

(22.7)

Rel (local)

(4.3)

(16.8)

(23.8)

52-week high/low

61.4p

43.6p

Business description

IP Group helps to create, build and support IP-based companies internationally. The group focuses on companies that meaningfully contribute to regenerative (Kiko), healthier (life sciences) and tech-enriched (deeptech) futures. The group is mostly active in the UK, with an additional international footprint through investment platforms in Australia, New Zealand, and the United States.

Next events

AGM

June 2024

Analysts

Milosz Papst

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

IP Group is a research client of Edison Investment Research Limited

IP Group’s NAV declined by 13% in total return (TR) terms in FY23, affected by continued soft valuations across venture capital (VC) markets, as well as funding delays at some of its holdings. That said, management indicated that many of IP Group’s portfolio companies continued to make strong progress. Its maturing portfolio offers a number of potential NAV triggers and is now available at a wide 59% discount to NAV. We note that, as at end-2023, only 14% of IP Group’s portfolio was valued based on funding rounds completed more than 12 months ago and 46% of its private portfolio was valued by a third-party specialist. IP Group’s holding-level liquidity was solid, with gross cash of £227m (or 19% of NAV) and 87% of its portfolio holdings (by value) had a cash runway to 2025 or beyond.

IP Group’s historical results highlights

Period end

Net cash*
(£m)

Portfolio fair value** (£m)

NAV
(£m)

NAV/share
(p)

Price/NAV
(%)***

06/22

191.6

1,266

1,414

136.7

(49)

12/22

160.1

1,259

1,376

132.9

(58)

06/23

111.7

1,276

1,314

126.7

(55)

12/23

91.7

1,165

1,190

114.8

(49)

Note: *Includes restricted cash but not funds held on behalf of Enterprise Investment Scheme/venture capital trust investors. **Portfolio fair value includes US platform and other LP interests. ***Based on share price at respective period end.

Offering access to disruptive innovation

IP Group allows investors to tap into the vast opportunity set of early-stage, innovative, private companies (including university spin-offs), with a particular focus on the UK. We believe these projects pursue some of the most compelling investment themes over the next decade, spanning life sciences, deeptech (eg applied AI, next-generation networks, human-machine interface, quantum computing) and cleantech (eg hydrogen, nuclear fusion, electric vehicles). We note that the UK government puts tech innovation high on its agenda, as illustrated by 1) the Science and Technology Framework, 2) the R&D tax regime and 3) the Mansion House reforms, among others. The Mansion House reforms could potentially unlock £50bn in pension fund capital by 2030 for unlisted equities, part of which would likely be invested in early-stage UK tech businesses.

Strong emphasis on more mature assets

IP Group’s technical know-how, market knowledge, global relationships and evergreen structure make it well suited to support innovative businesses. The company is now focused on doubling down on a narrow set of more mature, growth-stage businesses to generate returns. Its management believes that several of its holdings are now nearing inflection points, which could prove to be important NAV catalysts. More than 10 of its portfolio companies in the life sciences sector are conducting clinical trials and target major clinical milestones by end-2025. IP Group’s key deeptech portfolio companies seek to build scale through continued top-line growth (eg Featurespace, Garrison Technology, Teya). Finally, its cleantech holdings target major technological and funding progress (eg Hysata, First Light Fusion).

The IP Group value proposition

Focused on major technology themes of the future

IP Group invests in and supports businesses predominantly based on research from universities, research centres and other networks, mostly in the UK (84% of portfolio value at end-2023), with its international investment platforms providing additional exposure to foreign IP. As a result, it offers liquid and diversified exposure to some of the most compelling long-term investment themes across life sciences, deeptech and cleantech (Kiko Ventures). The acquisition of Touchstone Innovations in 2017 significantly boosted IP Group’s life sciences portfolio, which at end-2023 accounted for 33% of total portfolio value, with a further 15% attributable to the listed Oxford Nanopore Technologies (ONT). That said, its top holdings also include deeptech and cleantech plays like Featurespace, Hysata, Oxa Autonomy and First Light Fusion (each of these four companies makes up c 6% of IP Group’s end-2023 portfolio, see below for details).

While IP Group’s total portfolio at end-2023 consisted of 86 different holdings (excluding de minimis and organic holdings), the 18 direct investments included in the top 20 holdings (the other two being holdings in limited partnerships) represented 70% of the total portfolio. De minimis and organic companies are those at a very early stage, or in which the group’s holding is of minimal value and takes up little management time. Organic holdings are investments in which the group has acquired a shareholding due to the technology transfer relationship with Imperial College (now expired), but in which it has not actively invested.

Exhibit 1: IP Group’s portfolio value split by sector at end-2023

Exhibit 2: Contribution of top holdings to IP Group’s NAV per share at end-2023

Source: IP Group

Source: IP Group

Exhibit 1: IP Group’s portfolio value split by sector at end-2023

Source: IP Group

Exhibit 2: Contribution of top holdings to IP Group’s NAV per share at end-2023

Source: IP Group

Underpinned by strong technology and market expertise

IP Group provides a blend of technical expertise, market knowledge and global relationships, as well as legal and IP expertise. Its tech know-how gives it the confidence to assume greater (calculated) risk when investing in disruptive technologies of the future ahead of their inflection points. We believe that this is well illustrated by the fact that several of IP Group’s employees have become board members of its portfolio companies. For instance, Paul Barrett (founder and CEO of Hysata) was previously partner and head of physical sciences at IP Group Australia; Dr Spike Willcocks (chief strategy officer at ONT) has previously led IP Group’s life sciences vertical and was responsible for the formation of ONT; and Stuart Gall (CEO of Intelligent Ultrasound) was a joint founder and executive director of Fusion IP (an AIM-listed university IP commercialisation company) before its acquisition by IP Group in 2014 (where he was senior advisor until 2020). Examples of how IP Group’s technical expertise can translate into solid returns are its full exits of WaveOptics and Ceres Power (see below).

Benefiting from a vast investor and deal origination network

IP Group leverages a wide investor network to provide capital to its portfolio companies, with only 13% of the c £667m raised across its portfolio in FY23 contributed by IP Group itself (vs 12% out of c £1.0bn in FY22), see Exhibit 3. Most of this additional capital has come from strategic corporate investors, Enterprise Investment Scheme investors, universities and institutional investors. Interestingly, the list of co-investors in IP Group’s portfolio also includes many of its closest competitors, some of which it co-founded and in which it is a minority investor (eg Oxford Science Enterprises and Cambridge Innovation Capital).

IP Group derives deal flow from its network of relationships, its broader ecosystem and through the team’s reputation in the market. It will only invest where it feels it has a competitive edge (such as strong relationships and a better understanding of the science) and where management can leverage its broader ecosystem to add value to the potential investee company. Historically, IP Group had exclusive rights to IP spin-offs from 14 UK universities. Although these rights have now largely expired (except for the exclusive relationships with Oxford, Cambridge, Bristol and Imperial for their alumni funds retained by Parkwalk Advisors, its wholly owned fund management business), the duration and depth of the group’s relationships mean that it remains well-placed to secure preferential rights even without contractual exclusivity.

Exhibit 3: IP Group leverages significant third-party capital to support its portfolio

Source: IP Group

Importantly, £650m in third-party capital is managed by entities in which IP Group is invested, most notably Parkwalk Advisors (£469m at end-2023) and IP Group Hostplus Innovation Fund (£163m at end-2023). IP Group derives regular fee income from these assets under management, which amounted to £5.9m in FY23 (FY22: £7.1m) and covered c 21% of its operating expenses (excluding share-based payments and carried interest plan charges). We note that Parkwalk Advisors and IP Group have been among the top investors into UK spin-offs (see Exhibit 4).

Exhibit 4: Top investors in UK spin-offs by number of equity deals in 2022

Source: Beauhurst, Parkwalk Advisors

Emphasis on more mature holdings with near-term catalysts

The group’s permanent balance sheet capital provides a level of flexibility to accompany businesses on their development path which a traditional fixed fund life general partner (GP)/limited partner (LP) structure typically lacks, while allowing the group to retain influential shareholdings. Before IP Group’s recent shift in capital allocation (see below), its initial investment in a given early-stage business was usually low (a few hundred thousand pounds), often alongside university funds. From there, it nurtured and supported the investment to refine the proposition and build a team to exploit the IP. It normally took an initial large minority stake of the equity at the outset, with its shareholding then steadily reducing through subsequent funding rounds. IP Group is still a large shareholder in many of its companies, including ONT (9.8%), Featurespace (20.1%), Istesso (56.5%) and First Light Fusion (27.5%).

Early-stage IP-based companies have typically taken 10–15 years to commercialise and mature. As a result, despite IP Group being set up more than 20 years ago, the maturity of its portfolio has only been demonstrated over the last few years. Management believes there are multiple near- to mid-term catalysts across IP Group’s portfolio, including:

Progress in clinical trials at more than 10 portfolio companies which are currently conducting clinical trials and target major clinical milestones by end-2025 (and which represented an aggregate fair value of c 24p per share at end-2023), see Exhibit 11 below. Management believes that one of the most promising is Istesso, which expects Phase IIb clinical trial results for rheumatoid arthritis in H124. IP Group’s management highlights that it saw an uptick in M&A activity for Istesso’s peers, eg Nimbus Therapeutics (acquired by Takeda in February 2023 for US$4.0bn), Prometheus Biosciences (acquired by Merck in June 2023 for US$10.8bn) and Telavant (acquired by Roche in December 2023 for US$7.1bn).

Strong revenue growth, mostly across its deeptech holdings (Featurespace, Garrison, Teya).

Major technological and funding progress of its key cleantech holdings (eg Hysata and First Light Fusion).

The company has typically committed up to £3m to an individual funding round (with some exceptions, eg investments in ONT of £14m and £18.7m as part of larger funding rounds in 2016 and 2021, respectively). However, the group is now increasingly focusing capital allocation and team efforts on its priority list, which it believes it can build into companies worth more than US$1bn within the next three to five years. These include Istesso, First Light Fusion, Featurespace, Garrison Technology, Pulmocide, Hysata, Genomics and Oxa Autonomy, in addition to the three unicorns already created (ONT, Ceres Power and Hinge Health), see below for details.

We understand that overall, the company’s preference will be to invest in new businesses at a somewhat later stage (ie post-seed). IP Group aims at leveraging the increasing amount of funding provided to spin-out companies at the earliest stages, partly in the form of government grants through university technology transfer offices and Innovate UK, and partly through the UK tax system as (Seed) Enterprise Investment Schemes eligible investments, which provide incentives to invest capital at this very early stage. In staying close to universities and other centres of innovation, but encouraging the flow of such capital into high-risk opportunities, IP Group can achieve the best of both worlds – de-risking its investments while still maintaining access to the best deals.

Impact through science and technology

While impact has always been at the heart of IP Group’s model, this is now set out more clearly with the group’s evolving purpose to contribute to a better future through the impact of science and technology-based businesses. IP Group integrates ESG using a bottom-up approach, looking at each deal individually, using the dual lens of potential positive impact to the world and incorporating sustainability factors/ESG materiality, as well as financial metrics. For more details on IP Group’s approach to ESG, see our initiation note and IP Group’s 2022 impact report.

Exhibit 5: IP Group’s impact approach

Source: IP Group

Available at a wide discount to NAV

Following a stabilisation in valuations in H123, IP Group’s NAV fell in H223 on the back of a further softening in the valuations of early-stage companies across the broader market. This translated into a 13% NAV decline in TR terms in FY23 (after a c 20% decline in FY22). We note that the downward revaluations across IP Group’s portfolio were mostly driven by a reduction in fair value of the holdings which faced delayed funding (£116m impact, see Exhibit 6), such as First Light Fusion. The current valuations of these holdings may therefore already discount potential down rounds in the near term. The negative effect of actual down rounds completed in FY23 across IP Group’s portfolio was less pronounced at £27m and was more than offset by the £55m contribution from up rounds, most notably in the case of Hysata. Market-based adjustments accounted for £22m of value reductions and included, eg a lower revenue multiple applied to Hinge Health (despite continued double-digit revenue growth). Finally, £11m came from company-specific factors, eg Oxular’s clinical setback.

Exhibit 6: IP Group’s major portfolio revaluation drivers in FY23

Source: IP Group

IP Group’s share price remained broadly stable in 2023, but has seen a c 19% de-rating since end-2023 to date. As a result, IP Group’s shares now trade at a wide 59% discount to NAV. Other listed VC/growth equity investment companies (eg Molten Ventures, Seraphim Space Investment Trust and Augmentum Fintech) have also recently experienced depressed share prices and deep discounts to NAV. This likely reflects investor anxiety related to: 1) the valuations of early-stage private companies amid interest rate normalisation and macroeconomic headwinds, 2) the cash runways of portfolio companies and 3) the amount of holding-level liquidity required to continue participating in subsequent funding rounds. That said, we note that IP Group’s discount to NAV is much wider than the average 32% discount in secondary market transactions for LP VC portfolios in 2023, according to the latest Global Secondary Market Review by Jefferies. In the following sections, we discuss IP Group’s valuations, cash runway and holding-level liquidity in more detail.

Exhibit 7: IP Group’s discount to NAV

Source: IP Group, LSEG, Edison Investment Research

Market backdrop: The UK’s efforts to remain at the forefront of tech innovation

Equity investments into UK spin-offs have grown significantly over the last decade

The UK has an excellent footprint in terms of top-tier universities producing technology spin-offs, with top players in this respect being the University of Oxford (64 equity deals secured by its spin-offs in 2022), followed by the University of Cambridge (50) and Imperial College London (26), according to the Equity investment into spin-offs 2023 report by Beauhurst and Parkwalk Advisors. This is well illustrated by the growth in equity investments in UK spin-offs, with the annual number of deals doubling and deal value increasing sixfold between 2013 and 2022 (see Exhibit 8). In this context, we also note that, according to PitchBook, the UK and Ireland remained the key VC deal market in Europe with a c 34% share in 2023.

Interestingly, two of IP Group’s portfolio holdings (Oxa Autonomy and Nexeon) made it into the top seven equity deals into spin-offs by investment value in 2022 (with Nexeon represented twice given its two deals in 2022). While c 75–80% of the equity deals involved exclusively UK investors in 2013–20, the share declined to c 63–64% from 2021 at the expense of UK/foreign co-investments and deals with foreign investors only. Beauhurst and Parkwalk Advisors highlighted that this was likely a function of a few large life sciences funding rounds, as well as a potential value arbitrage between the UK and other deeptech hubs internationally, partly driven by sterling depreciation.

Exhibit 8: Equity investments into UK spin-offs

Source: Beauhurst, Parkwalk Advisors

UK government putting tech innovation high on its agenda

In March 2023, the UK government launched the Science and Technology Framework to cement the UK’s position as a science and technology superpower by 2030. It earmarked more than £370m in government funding to support infrastructure, investment and skills for the UK’s growing technologies, such as quantum and supercomputing and AI, among others. The government has also announced a further extension to end-June 2023 of the financial guarantee provided to the UK’s Horizon Europe applicants. Furthermore, last year it confirmed its commitment to spend £20bn on R&D in 2024–25. The UK government also continues to execute its agenda with respect to changes to the R&D tax regime reform (which supports R&D-intensive SMEs). Finally, in July 2023, the chancellor presented a series of new Mansion House reforms, which are aimed at, among others, unlocking capital to fund high-growth businesses through reforms to the more than £2.5tn UK pension market. The government announced an industry-led compact, whose signatories (the UK’s largest defined contribution pension providers) committed to the objective of allocating at least 5% of their default funds to unlisted equities by 2030, which could unlock £50bn of capital.

Headwinds weighing on European VC markets at present

Recently, deteriorating macroeconomic conditions, along with a de-rating of public equity markets and a normalisation of monetary policy after the ultra-low interest rate environment of previous years, have had an impact on both deal volumes and valuations in the VC market, given that VC-backed companies are long-duration assets and therefore more sensitive to a changing rate environment. As a result, VC markets remain soft, with longer due diligence processes extending deal timelines and limiting exit activity.

European VC deal value declined sharply by c 46% y-o-y to €57.1bn in 2023 (with venture growth hit the hardest). That said, it is still higher than the levels seen before the exceptionally strong 2021/22 period (see Exhibit 9). European VC fund-raising stood at €17.2bn in 2023 compared to €28.2bn in 2022. PitchBook highlights that 2023 was the worst year in terms of European VC exits since 2013, with an exit value of just €11.8bn compared to €40.4bn in 2022 (see Exhibit 10). That said, we note some tentative signs of revival in the IPO markets (as illustrated by the listings of Arm, Reddit, Klaviyo and Instacart) as well as in private M&A markets (including some notable transactions in the pharma industry). Moreover, recent fund-raising volumes, coupled with cautious capital deployment in 2023, left VC funds with a significant amount of dry powder (c €45bn as indicated by PitchBook in its 2023 European Private Capital Outlook: H1 follow-up report), which may support deal activity in 2024.

Exhibit 9: European VC deal value and count

Exhibit 10: European VC exit value

Source: PitchBook. Note: *Data as at 31 December 2023.

Source: PitchBook. Note: *Data as at 31 December 2023.

Exhibit 9: European VC deal value and count

Source: PitchBook. Note: *Data as at 31 December 2023.

Exhibit 10: European VC exit value

Source: PitchBook. Note: *Data as at 31 December 2023.

Portfolio: Regenerative, healthier and tech-enriched future

Below we discuss IP Group’s approach in its three core investment segments.

Life Sciences: Understanding, reprogramming, reconditioning and redirecting

Thematically, IP Group’s life sciences team invests in understanding disease, focusing on disease cure and prevention rather than investing in companies that simply treat symptoms, thereby helping to create healthier, rather than just longer, lives. Its investments provide exposure to drugs developed for a variety of indications, including different types of cancer, autoimmune diseases (eg rheumatoid arthritis), as well as respiratory and kidney diseases. The four pillars of IP Group’s approach in the life sciences sector are:

A better understanding of the root drivers of disease, such as the human microbiome, with the group invested in Microbiotica, and genetics, where ONT provides tools for reading the genomes of both patients and pathogens.

Reprogramming cells to change their behaviour from diseased mode to healthy mode. A company that exemplifies this is Istesso, which focuses on reprogramming cells to treat autoimmunity.

Reconditioning tissues to improve the response to existing therapies. IP Group has invested in Akamis Bio, which has technologies that recondition tumours to enhance cancer immunotherapy.

Redirecting patient behaviour to reduce risk. Genomics redirects patient behaviour to mitigate the risk of, for example, cardiovascular disease.

Exhibit 11: IP Group’s key life sciences holdings expecting major milestones until end-2025

Source: IP Group. Note: Timing reflects current best estimate of clinical readouts and is subject to change; 1 – based on a disclosed trial start date in 2024, IP Group estimates trial completion in H225; 2 – based on a disclosure in the media, IP Group estimates first batch of data to come in mid-2025; 3 – IP Group estimates Phase IIb interim data for SerpinPC and Phase I interim data for ORX750 in Q424. 4 – IP Group estimates Phase II/III interim data for KL1333 in H224.

ONT is IP Group’s largest life sciences holding (making up 15% of its end-2023 portfolio value). The company developed a new generation of nanopore-based sensing technology. Its first products enable the real-time, high-performance, accessible and scalable analysis (sequencing) of DNA and RNA in patients and pathogens. IP Group was its founding shareholder in 2005 and held a 14.4% stake in the run-up to the IPO in 2021. ONT achieved a five-year CAGR in underlying life sciences research tools (LSRT) revenue to FY23 of 39%. However, growth in FY23 alone was 16% y-o-y to c £170m, below ONT’s earlier expectations of 18–25% growth at constant currency (which had been revised down from 29–50% implied by the previous FY23 guidance of £190–220m). The company now expects 20–30% growth in FY24 to £180–195m at a gross margin of 57% (vs 53.3% in FY23 and 56.3% in FY22). Moreover, it maintains its medium-term (ie FY27) target growth rate of more than 30% per year on a constant currency basis. It is aiming for an LSRT gross margin of more than 62% by FY27 (vs more than 65% by FY26 previously) and to reach adjusted EBITDA break-even by end-FY27 (previously expected by end-FY26). The company’s cash, cash equivalents and liquid investments stood at £472m at end-2023.

Exhibit 12: ONT’s MinION portable, real-time device for DNA and RNA sequencing

Source: Oxford Nanopore Technologies

As highlighted above, another of IP Group’s priority holdings in the life sciences segment is Pulmocide, which is looking to treat common acute and chronic respiratory tract infections associated with serious complications.

We note that seven of IP Group’s life sciences holdings were recently featured in PwC UK’s The Life Sciences Future50 report. For a detailed discussion of IP Group’s life sciences portfolio, see our report Deep dive into the life sciences portfolio, published on 10 May 2023.

Deeptech: Science fiction becoming reality

IP Group has built a commendable portfolio of businesses developing breakthrough technologies, mostly across four key focus areas: applied AI, next-generation networks, human-machine interface and future compute. According to its mission statement in the deeptech domain, IP Group is working towards a tech-enriched future by investing in assets that will deliver digital resilience, create prosperity and enable new human capability (therefore contributing to the United Nations Sustainable Development Goal 9: industry, innovation and infrastructure). Importantly, around 90% of the deeptech portfolio (by fair value) has already started to generate revenue. For instance, Featurespace reported £34.4m in FY22 (last available data), with recurring revenues of c 80% and a customer base that includes blue-chip financial institutions like HSBC, Worldpay and NatWest.

Three of its largest deeptech holdings (Featurespace, Garrison and Ultraleap) made up 59% of the total deeptech portfolio value at end-2023. Featurespace deploys its proprietary machine learning algorithms (based on adaptive behavioural analytics) to monitor customer data for real-time fraud and financial crime detection. Garrison Technology provides a remote web browser and related hardware, allowing enterprises and government agencies to prevent local machines from accessing malicious data sources by keeping all activity in the cloud (by means of web isolation). Finally, Ultraleap is one of the leading IP owners in spatial computing and natural user interface technology, with its two complementary core technologies being hand tracking and air haptics.

For further details on IP Group’s deeptech portfolio, see our Detailed look at the deeptech portfolio, published on 3 October 2023.

Exhibit 13: IP Group’s deeptech key areas of focus

Source: IP Group

Kiko Ventures (cleantech): Tackling sustainability and mobility

IP Group’s cleantech vertical, now branded Kiko Ventures, has a team that exhibits a solid track record with a gross internal rate of return (IRR) of more than 30% and gross realisation proceeds of £150m since the establishment of IP Group’s cleantech theme. Kiko Ventures seeks to position itself as the UK’s leading cleantech VC player and has recently become the founding member of the Cleantech for UK initiative, backed, among others, by Breakthrough Energy, which was founded by Bill Gates. Kiko Ventures’ areas of thematic focus include: 1) renewable electricity and alternative fuels, 2) mobility and transport, 3) land use, greenhouse gas capture/removal and storage, 4) climate risk and change management and 5) food and agriculture. Its portfolio consisted of 15 holdings at end-2023, with the top five covering 85% of fair value. These are:

Hysata (25% of Kiko Ventures’ portfolio fair value) is developing a novel capillary-fed electrolyser (a device that uses electricity to split water into hydrogen and oxygen), which has 95% system efficiency compared to the best incumbent solutions at 75%. In 2023, it achieved a key milestone set in a Series A funding round several months ahead of schedule, triggering the release of the second funding tranche and allowing the business to complete the first close of its Series B round in January 2024 at a valuation significantly above the previous funding round, resulting in a £46.5m fair value uplift for IP Group to £70.0m.

First Light Fusion (FLF, 24%) is developing a nuclear fusion technology based on inertial confinement. The company achieved nuclear fusion using its ‘projectile fusion’ method in 2023, which was externally validated by the UK Atomic Energy Authority. We note that FLF used the same underlying physics as the National Ignition Facility, which in December 2022 achieved a fusion gain for the first time, see our ETV interview for details. FLF’s Series C funding round (initially planned for 2023) is pending due to a more difficult funding environment. As a result, IP Group reduced the fair value of this holding by £49.6m to £64.9m, based on inputs from a third-party valuation expert.

Oxa Autonomy (24%) is developing universal autonomous software for any type of vehicle across passenger transportation, logistics, goods delivery, agriculture, energy and mining. The company successfully completed a US$140m Series C funding round in January 2023, at a valuation that triggered a c 280% uplift to the previous fair value (£45.4m for IP Group). Oxa’s management expects its revenue to grow exponentially in the next few years, driven in particular by off-public highway industrial applications, while in the area of on-public highway mobility it will focus on long-term strategic programmes with customers ahead of the implementation of major shuttle and goods delivery programmes by governments across the world. It already generates revenue from products for data-centric customers.

Bramble Energy (8%) produces fuel cells for gigafactories (large-scale facilities producing rechargeable batteries for electric vehicles, as well as other applications).

Nexeon (4%) develops silicon anode materials for lithium-ion batteries (a more efficient alternative to graphite materials), and recently signed a long-term supply agreement with Panasonic Energy.

Platform investments

Since it was launched in the UK in 2001 (see our initiation note for details), IP Group’s model has expanded to include investment platforms based on university ecosystems in the United States, Australia and New Zealand. However, it recently made a decision to deprioritise the US investment platform (a fund in which it holds a 58% stake, managed by Longview Innovation) given that the latter scaled back its overheads and decided to focus on maximising the value of its existing holdings amid a challenging funding environment. As a result, IP Group marked down its stake in the US platform by 50% to £46.0m. That said, IP Group still expects to realise value from this portfolio. It also abandoned its plan to launch a growth fund in China. At end-2023, IP Group’s platform investments consisted of holdings in two companies and three LP interests valued at £90.8m (or 8% of portfolio value), most of which was attributable to the above-mentioned US platform, as well as an interest in the UCL Technology Fund.

Track record: Three unicorns created so far

Given the longer development cycle of the businesses in which IP Group has historically invested, it is yet to build a long-term track record of delivering strong NAV TR. An indication of the growing maturity of its portfolio in recent years has been the pick-up in exits, which translated into net realisations of 12% and 9% of portfolio fair value in FY20 and FY21, respectively (see Exhibit 14). This includes the following notable full and partial exits, of which ONT, Ceres Power and Hinge Health became unicorns (ie reached a valuation above US$1bn):

ONT successfully completed its IPO in September 2021, allowing IP Group to realise £84.1m in cash on its investment by selling around one-fifth of its stake. Together with a minor partial realisation in 2020, this brought IP Group’s total partial realisation from ONT to £106m, already more than its total investment of £77m. IP Group held a c 9.8% stake in the company, valued at £173.6m at end-2023, which (despite the strong share price drop to c 208p at end-2023 vs the IPO price of 425p) implies a gross multiple on invested capital (MOIC) of c 3.6x (of which 1.4x is realised). However, we note that ONT’s share price fell further post the balance sheet date and now stands at 107.1p.

Ceres Power develops fuel cell technology used by original equipment manufacturers and partner organisations committed to developing combined heat and power products and other distributed energy generation applications. IP Group fully realised this investment in FY20 for cash proceeds of £128m, implying a strong 7.0x MOIC over an eight-year investment period.

Inivata, which provides a liquid biopsy platform, was sold to NeoGenomics in FY21 for nearly US$400m, generating proceeds from this full realisation for IP Group of £64.6m at a 2.5x MOIC.

WaveOptics, which supplies augmented reality displays, was acquired by Snap (which used a WaveOptics display for its AR spectacles launched in 2021) for more than US$0.5bn in May 2021. IP Group received a £60.3m consideration for the full exit in two tranches, realising a strong MOIC of 7.9x and gross IRR of 54.3% on its WaveOptics investment (IP Group invested a total of £7.6m into the business over six years, including an initial investment of £1.5m).

Hinge Health is a digital clinic for back and joint pain for employers and health plans. IP Group made a minor partial realisation of the investment in 2021 at a very strong MOIC of 85.4x arising from the company’s first-time unicorn valuation (US$6.2bn) in that year. IP Group collected net realisation proceeds of £9.4m, retaining a c 1.8% stake in the business valued at £34.0m at end-2023.

Exhibit 14: IP Group’s historical investments and realisations

Source: IP Group

We believe IP Group’s current track record should be evaluated since the acquisition of Touchstone Innovations in 2017 in a share-for-share merger, whereby Touchstone shareholders received c 34% of the enlarged group. IP Group’s NAV TR in both FY18 and FY19 was affected by write-downs following the Touchstone acquisition (as part of the portfolio rationalisation/clean-up process), resulting in a 14% NAV decline between FY17 and FY19 (see Exhibit 15). The company’s performance rebounded in the next two years, culminating in FY21 with the listing of ONT.

The subsequent de-rating of IP Group’s listed holdings (primarily ONT), alongside the broader equity market decline from the 2021 peak, overshadowed valuation gains across its private portfolio and brought its NAV per share to 114.8p (ie close to end-2018 levels). IP Group’s NAV TR between end-2019 and end-2023 was c 10% (c 2.3% annualised). This includes 3.97p in dividends per share paid since 2021 when IP Group’s board updated its dividend policy, encouraged by increasing portfolio maturity, cash realisations and continued strong holding-level liquidity (IP Group recently revised its distribution policy, as discussed below). It is worth noting that IP Group normally invests in plain equity rather than preferred shares (given it often invested at the seed stage) and therefore has not enjoyed downside protections such as liquidation preferences or anti-dilution clauses.

Exhibit 15: IP Group’s historical NAV development and dividend payments

Source: IP Group

Market cap implies 62% discount to gross private portfolio value

As discussed above, the valuations of early-stage private companies have been affected by recent macroeconomic developments. Of the 21 new funding rounds completed across IP Group’s portfolio in 2023, 62% and 14% were up rounds and flat rounds, respectively, although there has been an uptick in down rounds in late 2023. Within the portfolio of Parkwalk Advisors, there were 13 up rounds, six flat rounds and nine down rounds. While further downward revaluations cannot be ruled out, we note that at end-2023, only 14% of IP Group’s portfolio was valued based on a funding round completed more than 12 months ago, with 16% based on more recent funding rounds and c 26% derived from an adjusted financing price based on past performance (see Exhibit 16). IP Group employs a third-party specialist to value some of its holdings, especially the larger unquoted portfolio holdings that have not completed a new funding round recently.

As at end-2023, 11 of IP Group’s largest private holdings (c 46% of private portfolio value) were valued by a third-party specialist. Finally, we note that IP Group’s auditor reviews its valuations for the purpose of its annual reports, and historically considered IP Group’s valuations ‘mildly cautious’. This seems to be confirmed by the average c 70% uplift to the last carrying value on IP Group’s £404.4m total realisations in 2020 and 2021. As discussed above, most of the FY23 downward revaluations came from companies which faced delayed financing rather than companies which completed down rounds, which suggests that IP Group aims to capture fund-raising risks in advance.

Exhibit 16: IP Group’s portfolio by valuation method at end-2023

Exhibit 17: Fair value changes in IP Group’s top 10 portfolio holdings (12 months to end-2023)

Source: IP Group

Source: IP Group, Edison Investment Research

Exhibit 16: IP Group’s portfolio by valuation method at end-2023

Source: IP Group

Exhibit 17: Fair value changes in IP Group’s top 10 portfolio holdings (12 months to end-2023)

Source: IP Group, Edison Investment Research

While valuing early-stage, innovative businesses is a difficult exercise, we believe that the above factors suggest that most of IP Group’s portfolio valuations should be largely up to date and at least moderately conservative. Nevertheless, we estimate that (assuming IP Group’s ONT stake is valued at a c 10% discount to the current market price, which IP Group may have to accept when selling a larger ONT stake) IP Group’s current market capitalisation implies a wide c 62% discount to its gross private portfolio value (excluding cash and deposits, see below) at end-2023. Moreover, the market cap only captures c 57% of the end-2023 carrying value of its top 18 holdings excluding ONT. This provides a good base for a potential share price re-rating if some of the above-mentioned portfolio catalysts materialise in the near term.

Maintaining a healthy holding-level liquidity buffer

Gross cash and deposits of c 19% of NAV

We acknowledge that in the above calculation of the implied discount to IP Group’s portfolio, we account for net cash in full at par, which may not fully capture the need to provide funding to those holdings that have a limited cash runway and a weaker funding syndicate (ie those that are more reliant on funding from IP Group). IP Group maintained a strong holding-level balance sheet, with gross cash and deposits at end-2023 of £227m or c 19% of NAV (£91.7m net of borrowings) and total gross liquidity, including listed holdings (based on their end-2023 valuations), of c £431m. Furthermore, we note that IP Group’s funds managing third-party capital had £109m of dry powder at end-2023.

Fixed rate below current Libor secured on private debt

Importantly, the interest rate on IP Group’s £120m private debt raised in August 2022 (which made up most of its £135.2m gross debt at end-2023) is fixed at 5.25%, which is lower than current three-month sterling Libor. Given the higher interest rate IP Group now receives on its deposits, the credit facility is cost-neutral. The debt will mature in three equal tranches in 2027, 2028 and 2029 and its main covenants include a minimum cash balance of £25m at any time (£100.9m at end-2023), equity of at least £500m (£1,190.3m at end-2023) and maximum gross debt less restricted cash at 25% of total equity at end-June and end-December in any given year (c 11% at end-2023).

More cautious approach to new investments

IP Group invested £73.2m during 2023, including a £15m convertible loan note investment in Istesso (a further £10m convertible loan investment was made in January 2024) and £8.1m across the North American platform, as well as £4.7m in Hysata. While it seeks new investments to expand its cleantech portfolio, management highlighted that valuations in this sector are holding up strongly, and therefore no new cleantech investments were made in 2023. Meanwhile, IP Group collected £38.6m in gross cash proceeds in 2023, primarily from the second tranche of the consideration for the sale of WaveOptics in 2021.

Buybacks as the main form of distributions to shareholders

Given the wide discount to NAV, IP Group launched a share buyback programme in December 2023, allocating up to £20m of its FY23 cash realisations. It intends to focus on this form of returns to shareholders when the discount to NAV exceeds 20% and therefore decided to pause paying dividends (its last payment was the interim FY23 dividend of 0.51p per share in September 2023). The group’s capital distribution policy still assumes that the majority of cash proceeds will be reinvested, with a smaller proportion used to deliver cash returns to shareholders.

87% of portfolio has a cash runway to 2025 or beyond

IP Group’s portfolio companies raised total funds of c £667m in 2023 (vs £1.0bn in FY22), including a £226.5m Series C round for Apollo Therapeutics, as well as a £42m funding round completed by Quantum Motion, the largest-ever single investment in a quantum computing start-up in the UK. As a result, most of its direct portfolio holdings with an investment value above £4m had a good cash runway at end-2023, with 35% by value (including ONT) funded to profitability and only 13% requiring funding before end-2024 (see Exhibit 18). A large part of IP Group’s portfolio (41%) has a cash runway until 2025, therefore fund-raising efforts across IP Group holdings would benefit from an improvement in deal activity across VC markets at some stage during 2024.

For a detailed summary of principal risk factors relating to IP Group, see our initiation note.

Exhibit 18: Cash runway of IP Group’s portfolio companies at end-2023

Source: IP Group. Note: Direct holdings with IP Group’s investment holding value above £4m.

Exhibit 19: Financial summary

Year end 31 December

£m

FY18

FY19

FY20

FY21

FY22

FY23

INCOME STATEMENT

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Portfolio returns

(46.1)

(44.6)

228.0

495.3

(309.1)

(160.5)

Fee income

9.9

8.6

6.2

13.6

7.1

5.9

Revenue

 

 

(36.2)

(36.0)

234.2

508.9

(302.0)

(154.6)

Cost of sales

-

-

-

-

-

-

Gross Profit

(36.2)

(36.0)

234.2

508.9

(302.0)

(154.6)

Carried interest charge

1.1

1.3

(14.3)

(17.2)

(12.0)

4.7

Operating costs

(51.7)

(39.4)

(29.4)

(33.1)

(27.4)

(28.0)

Investment and acquisition costs

-

-

-

-

-

-

Normalised operating profit

 

 

(86.8)

(74.1)

190.5

458.6

(341.4)

(177.9)

Exceptionals

(203.2)

-

-

-

-

-

Share-based payments

(1.9)

(2.3)

(2.9)

(2.6)

(2.9)

(2.6)

Reported operating profit

(291.9)

(76.4)

187.6

456.0

(344.3)

(180.5)

Net Interest

(1.8)

(2.4)

(1.5)

(1.4)

0.8

4.2

Profit Before Tax (norm)

 

 

(88.6)

(76.5)

189.0

457.2

-

(173.7)

Profit Before Tax (reported)

 

 

(293.7)

(78.8)

186.1

454.6

(340.6)

(176.3)

Reported tax

(0.1)

(0.1)

(0.7)

(5.3)

(1.0)

1.9

Profit After Tax (norm)

(88.6)

(76.6)

188.3

451.9

(339.6)

(175.6)

Profit After Tax (reported)

(293.8)

(78.9)

185.4

449.3

(344.5)

(174.4)

Minority interests

0.1

3.4

-

(1.1)

-

3.5

Net income (normalised)

(88.5)

(73.2)

188.3

450.8

(339.6)

(172.1)

Net income (reported)

(293.7)

(75.5)

185.4

448.2

(344.5)

(170.9)

Basic average number of shares outstanding (m)

704

1,059

1,059

1,062

1,060

1,036

EPS - basic normalised (p)

 

 

(8.4)

(6.9)

17.7

42.5

(32.8)

(16.6)

EPS - diluted normalised (p)

 

 

(8.4)

(6.9)

17.6

41.9

(32.8)

(16.6)

EPS - basic reported (p)

 

 

(27.7)

(7.1)

17.5

42.3

(33.3)

(16.5)

Dividend (p)

-

-

-

1.48

1.22

1.27

Net overheads (operating costs less fee income)/NAV (%)

(2.1)

(3.4)

(2.7)

(1.7)

(1.1)

(1.9)

BALANCE SHEET

Fixed Assets

 

 

1,147.7

1,068.5

1,186.1

1,539.5

1,266.2

1,175.1

Intangible Assets

0.7

0.4

0.4

0.4

0.4

0.4

Tangible Assets

1.5

1.1

0.8

0.3

0.4

1.4

Investments

1,128.2

1,045.6

1,162.7

1,445.9

1,165.8

1,103.0

Investments in Associates

17.3

21.4

22.2

92.9

99.6

70.3

Current Assets

 

 

225.6

227.2

289.2

339.8

291.6

236.5

Stocks

6.6

32.3

18.9

17.9

50.1

9.6

Cash & equivalents

129.0

121.9

127.6

105.7

88.7

100.9

Deposits

90.0

73.0

142.7

216.2

152.8

126.0

Current Liabilities

 

 

(31.9)

(41.4)

(26.4)

(34.1)

(23.2)

(23.4)

Creditors

(16.5)

(26.0)

(11.0)

(18.7)

(16.9)

(17.1)

Lease liabilities

-

-

-

-

-

-

Short term borrowings

(15.4)

(15.4)

(15.4)

(15.4)

(6.3)

(6.3)

Long Term Liabilities

 

 

(123.2)

(112.4)

(117.0)

(107.1)

(158.5)

(197.9)

EIB loans

(82.4)

(67.1)

(51.9)

(36.4)

(75.1)

(128.9)

Other borrowings

(23.0)

(26.0)

(32.9)

(18.7)

(19.5)

(19.8)

Lease liabilities

-

-

-

-

-

-

Other long term liabilities

(17.8)

(19.3)

(32.2)

(52.0)

(63.9)

(49.2)

Net Assets

 

 

1,218.2

1,141.9

1,331.9

1,738.1

1,376.1

1,190.3

Minority interests

3.9

0.5

0.5

(3.1)

(5.6)

(9.1)

Shareholders' equity

 

 

1,214.3

1,141.4

1,331.4

1,735.0

1,370.5

1,181.2

Hard NAV per share (p)

 

 

115.0

107.8

125.3

167.0

132.9

114.8

CASH FLOW

Op Cash Flow before WC and tax

(75.7)

(72.6)

191.9

460.2

(340.8)

(177.3)

Revaluation of investments held at fair value through P&L

(94.0)

46.1

44.6

(228.0)

(495.4)

160.5

Working capital

7.8

14.1

(5.9)

30.0

(3.5)

-

Exceptional & other

(3.1)

(3.4)

14.5

15.2

9.7

2.7

Net operating cash flow

 

 

(24.9)

(17.3)

(27.5)

10.0

(25.5)

(14.1)

Capex

(0.6)

(0.7)

-

(0.2)

(0.3)

-

Acquisitions/disposals

(4.8)

(9.3)

(4.5)

(10.1)

(4.6)

(9.8)

Equity financing

(100.9)

(63.0)

(68.6)

(131.6)

(97.4)

(64.0)

Dividends

-

-

-

(15.0)

(12.3)

(13.0)

Other

29.0

83.2

106.3

124.9

121.1

119.1

Net Cash Flow

(102.2)

(7.1)

5.7

(22.0)

(19.0)

18.2

Opening net debt/(cash)

 

 

(222.3)

(121.2)

(112.4)

(203.0)

(270.1)

(160.1)

FX

(0.1)

0.0

0.0

0.1

0.0

0.0

Other non-cash movements

1.2

(1.7)

84.9

89.0

(91.0)

(86.6)

Closing net debt/(cash)

 

 

(121.2)

(112.4)

(203.0)

(270.1)

(160.1)

(91.7)

Source: IP Group accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by IP Group and prepared and issued by Edison, in consideration of a fee payable by IP Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by IP Group and prepared and issued by Edison, in consideration of a fee payable by IP Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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