Schroders Capital Global Innovation (INOV)

08/04/2024

Results analysis from Kepler Trust Intelligence

Schroders Capital Global Innovation (INOV) has released its financial results for the year ending 31/12/2023. Over the year, the trust saw its NAV per share decrease by 11.2% on a total return basis, which compares to an average total return of -4.8% for the AIC Growth Capital sector.

Whilst the overall returns were negative, the final quarter of 2023 saw a recovery driven by positive developments in Autolus Therapeutics. Detractors primarily came from the public equity holdings.

The managers have continued to reprofile the trust including the disposal of legacy holdings, adding companies under the new strategy and progress existing holdings towards profitability. There were six new investments in private companies evenly split across the life sciences, venture and growth strategies.

The managers made four exits as well as notable reductions in two more. This activity raised c. £32.8m of which £22.8m was allocated to six new holdings and c. £7m to buybacks.

The board have committed to significant share buy backs with a goal to buy back at least 5% of the shares each year. The discount narrowed by nearly four percentage points to 42.1% at year end.

Chair Tim Edwards believes the final quarter represents the beginning of recovery, stating "The increase in net asset value in the last quarter of the year and the positive news flow … both indicate that momentum is beginning to turn in favour of growth in the new investments in the portfolio".

Kepler View

Tim Creed and Harry Raikes, co-managers of Schroders Capital Global Innovation (INOV), have continued the journey of transitioning the portfolio to predominantly private equity. This will then consist of companies mostly in the tech and healthcare industries and split across three strategies: venture, growth and life-sciences.

The managers have three main goals: reducing legacy holdings, developing the existing portfolio, and making investments that meet the new strategy. The first of these has resulted in four disposals, and two partial sell downs in the year. There have been six new positions in the period, split equally across the venture, growth and life-sciences strategies, all of which were unquoted companies. This activity has tilted the portfolio towards the goal of being predominantly a private equity vehicle.

The development of the existing portfolio has seen a focus on profitability and cash runway. Nearly 30% of portfolio companies were profitable, with another c. 32% having enough cash for two years of operations. This has arguably gone some way to de-risking the portfolio. Financing has become more challenging, therefore this has helped to mitigate risks in our opinion.

NAV over the year was negative, though the positive last quarter arguably reflects a turning point. This was largely driven by Autolus Therapeutics, but since the period end, portfolio holding Carmot Therapeutics was also taken over adding 2.6% to NAV. We believe these holdings demonstrate the upside potential of the portfolio.

Whilst the trust has seen some challenging periods, the managers argue that the new strategy is beginning to deliver on its potential. However, the discount remains wide at 42.1% despite the significant share buy backs. We think that this discount looks interesting, especially considering the buybacks, whilst the NAV could offer upside potential from further growth and corporate activity.

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