Chrysalis (CHRY ) has enjoyed a share price jump after the valuations of top holdings Starling and Klarna were revised upwards.

Shares in the portfolio of pre-IPO companies rose 6.2% to 101p this afternoon after a fourth quarter update confirmed higher valuation multiples at both top position Starling and second largest Klarna, which make up 29% and 15% of the portfolio, respectively.

The revaluation drove the net asset value (NAV) of the fund 11% higher to 156.6p per share over the final three months of 2024.

Digital bank Starling was written up, reflecting higher valuations among listed peers, after launching an instant-access ‘easy saver’ account over the period. Despite being open for just two months, managers Richard Watts and Nick Williamson said it had already taken ‘significant deposits’ and was on track for £1bn soon.

Starling has also put a £29m Financial Conduct Authority (FCA) fine over failings in its customer screening process behind it, paying it in full, with the matter ‘now resolved’, said the managers.

Buy-now-pay-later credit giant Klarna also enjoyed a lift in its valuation on the back of strong performance from its public payments peers, as well as the impact of a small, secondary £8.2m investment by Chrysalis, ‘which was also revalued to the new assessed valuation level’, said Williamson and Watts.

Third-quarter results showed improvements in profitability and income, and the credit group has also unveiled a range of tie-ups with giant payment providers, such as Apple Pay and Google Pay. In January, it announced a new deal with Stripe that will see customers become able to offer Klarna as a payment solution.

‘This helped Klarna to double the number of first-time merchants in the fourth quarter,’ said the Chrysalis managers, who believe these new deals will help the Swedish fintech ‘execute a successful IPO in 2025’.

Nearly all of the company’s assets increased in carrying value over the quarter, but the managers said the decision to buy back £27m of shares was also accretive to NAV ‘to the tune of nearly 3p’.

The fund – which has an around £888m underlying portfolio but is valued by the market at only £565m – announced plans to return £100m of capital to investors last September as it took aim at its large discount. At the beginning of September the shares traded at a 44% discount to NAV but this has shrunk to 35%, based on today’s update and share price jump. 

‘Our primary aims…are to maximise the value of the portfolio companies and sustainably narrow the share price discount to NAV,’ said the managers.

‘In terms of managing the share price discount…the company is currently just over a third of the way through the programme to return up to £100m of capital to shareholders.’

Wefox topped up

The managers did commit just €20m (£16.6m) of cash over the quarter, with a follow-on investment in Wefox, which was a portfolio sore spot last year as the fintech insurer warned it could face insolvency.

The managers said the cash injection into their fifth largest position, which makes up 6.9% of the portfolio, is ‘expected to be the last material funding commitment to the business for the foreseeable future’.

The managers are ‘working towards a solution, alongside management and other shareholders, that would provide sufficient funding for the company to execute its growth plan’.

Wefox has exited its non-core assets is now focused on expanding its insurance distribution.

Williamson and Watts said the ‘streamlined, asset-light model enables efficient growth, while allowing Wefox to capture distribution margin and some of the underwriting margin through its managing general agent strategy’.

As a managing general agent, Wefox underwrites policies on behalf of insurers without taking on underwriting risk, earning a share of the underwriting margin through commission payments.

‘By strengthening insurer partnerships and scaling its platform, Wefox believes it is positioned for sustainable expansion and improved profitability,’ said the management duo.

The managers said they were ‘unlikely’ to make new investments before 2026 and will do so only if the discount has narrowed. Before today, a share price rise of 20% over the past year had started to narrow the discount given the NAV was down 1.5% over the same period.

However, at Wednesday’s close, the NAV had fallen 40% over three years and the shares nearly halved as rising interest rates knocked Chrysalis’ fast-growing but pre-profit businesses.