As at 31 December 2024, Chrysalis Investments’ unaudited NAV was 156.62p. That is a 15.36p (11%) increase since 30 September 2024. Most of the increase came from an uplift in the fair value of the portfolio (+11.38p), foreign exchange moves added 1.39p, and the share buyback added 2.76p; other income, fees and expenses make up the balance.

Richard Watts and Nick Williamson, managing partners of Chrysalis Investment Partners LLP comment:

“The company’s NAV rose considerably in the quarter, supported by both the strong performances from listed peers and the buyback of approximately £27m of shares, which was accretive to NAV per share to the tune of nearly three pence.

Nearly all the company’s assets saw an increase in carrying value, albeit the position in Klarna benefited from the modest secondary investment ($10m) made in the quarter and the wefox position rose due to a decrease in the assessed downside scenario, a reassessment of the flow of capital via the waterfall and a follow-on primary capital injection of €20m.

Our primary aims, as articulated in the recent full year results, are to maximise the value of the portfolio companies and sustainably narrow the share price discount to NAV.

In terms of managing the share price discount to NAV, the company is currently just over a third of the way through the programme to return up to £100m of capital to shareholders, to which it remains committed.

In terms of maximising value, we are confident in the outlook for the portfolio in 2025. We believe Starling is excellently positioned to continue to build out a comprehensive banking experience for its customers; Smart Pension has a great platform from which to continue to grow, likely assisted by regulatory drivers from mooted changes to pensions schemes; and Klarna is actively exploring an IPO, which would deliver further liquidity to the company. These three portfolio companies account for c. 61% of NAV.”

Portfolio activity

Chrysalis invested €20m (c£16.6m) into wefox in the period, which is expected to be the last material funding commitment to the business for the foreseeable future. The adviser is working towards a solution, alongside management and other shareholders, that would provide sufficient funding for the company to execute its growth plan, enhance the valuation protection mechanisms of supportive wefox shareholders, and offer potential upside through the successful delivery of its strategy.

The company also invested $10m (c£8.2m) in a secondary offering in Klarna at a price which the adviser believes will yield a strong return for shareholders. Given Klarna has filed for an IPO, this investment is expected to become a liquid asset in the near-term.

In December, initial cash proceeds (c£79.0m) were received from the sale of Featurespace to Visa.

Net then, the company recorded a net inflow of cash from the portfolio over the period of approximately £54.2m, £27m of which was used to fund share buybacks.

Strategic considerations

In October 2024, the company gave notice that, following some faster than anticipated realisations, the adviser was considering the merits of new investments as part of the ongoing execution of the capital allocation policy (CAP) – the CAP being a key element of the continuation vote proposals that were supported by shareholders in March 2024. It was anticipated that the process of refining the investment approach and building out a pipeline of potential investments was likely to take several months, and that the capital return programme would continue to narrow the share price discount to NAV over this period.

Following discussions with a significant number of shareholders, the board wishes to clarify the following:

1. No proceeds from realisations will be considered for allocation to new investments until the company has satisfied the second pillar of the CAP, namely the return of £100m to shareholders (as of 29 January, c£36m had been returned)
2. The board will continue to monitor the CAP’s effectiveness in reducing the share price discount to NAV. While the discount has narrowed since the buyback programme began, the board is seeking a further, sustained improvement before considering new investments
3. Should further realisations occur, the board remains committed to the return of at least 25% of any net realised gains

Given these factors and the time required to build out an investment pipeline, the board believes that the company is unlikely to consider using its liquidity to make new investments before 2026 and, even then, only if the discount to NAV has narrowed further and on a sustained basis. In the meantime, the adviser is focused on maximising the value of the portfolio and enhancing NAV to the benefit of all shareholders.

The board and the adviser also acknowledge that some shareholders advocate for an expansion of the adviser’s resources, to better manage the portfolio and the company’s investment strategy. As such, the board will explore ways in which to achieve this with the adviser and will update shareholders as appropriate.

CHRY : Chrysalis NAV jumps by 11% over Q4 2024