Venture capital investment trusts have achieved strong profits from exits over the past month. Schr...
Venture capital investment trusts have achieved strong profits from exits over the past month.
Schroder Ventures International made £44m from an initial investment estimated to be around £1m. In May 1999 it acquired a stake in Across Wireless, in December the holding was valued at £1m. The trust sold its position to the Sonera Corporation in April, representing an uplift of around 42p per share. At the same time Electra disposed of its holdings in HMY and Robert Fleming, which provided an uplift of 23p per share.
Merrill Lynch believes as long as the economic backdrop remains benign, the sector should continue to perform well. Charles Cade, investment trust analyst at Merrill Lynch, is recommending investors be overweight the sector and particularly favours 3i Group even though the shares are currently trading at a 71% premium to NAV.
As at close of business on 17 May the share price was 1,211p and the NAV was 708p. The trust's final results for the year ending 31 March come out this week and Cade expects an NAV of 820p per share, but estimates that the trust has an appraisal value of around 1170p. He added: "While we would not seek to describe this number as conservative it does strike us as a realistic base from which to value the company.
"We believe the trust offers extremely good value at current levels."
The trust has a large stake in TeleCity, an internet infrastructure company. The business is currently in the middle of an IPO and Cade estimates the market cap of the company will be £690m. 3i is reputed to be selling a small percentage of its shareholding, but will retain 33% in the company it first backed as a start-up, says Cade.
For the three years to 10 May 3i's share price has advanced by 143.1%. Cade also likes Schroder Ventures and Electra which both have single figure discounts. As with 3i the Schroders trust has a strong technology track record, according to Cade, adding Electra's realisation plans appear to be going strongly. Schroder Ventures and Electra's share prices over three years have increased by 135.9% and 129.3% respectively. For investors looking for some value Cade suggested JZ Equity Partners which has its final results due in late May or early June.
He said: "These are especially significant to the trust, as it only revalues the portfolio annually. We are looking for an NAV of significantly more than the 224p announced a year ago. We would not be surprised by something in the 260p plus area, which would leave the company looking very good value."
On 16 May the shares were priced at 197p trading at a discount to NAV of 23.5%. While the outlook is positive for some venture capital trusts, others have had to change their investment remits.
Last month Murray Ventures announced it was changing its name to Murray TMT as well as altering its investment approach.
This was mainly due to the size of the trust's discount of around 26%. Geoff Burns, head of investment trusts at Murray Johnstone, said the trust had suffered due to its position in the private equity market.
He added while the deal flow for VCTs and 'large cap' venture capitalists, such as 3i and Candover, has been strong the volume of good quality deals in the middle ground has been low.