Questor: this hi-tech trust has taken a tumble and its premium has evaporated. Time to buy

Questor: this hi-tech trust has taken a tumble and its premium has evaporated. Time to buy

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Investors in Augmentum Fintech can be forgiven for feeling deflated right now. Shares in the trust, which invests in unlisted “disruptive” early stage financial services companies, have fallen by 26.3pc since the start of the year, causing it to slump to a 17.3pc discount. This marks a change for the fund, which had generally traded at a premium to net asset value.

There appear to be two reasons for this fall from grace. Firstly, Augmentum has been affected by the sell-off in listed “growth” stocks that took root at the start of the year, caused by investors shunning fast-growing companies and the promise of their future earnings (which are worth less in an inflationary environment).

Instead, they have turned to “value” stocks such as banks and miners, which are assessed relative to their profits in the here-and-now. Secondly, the war in Ukraine has caused fear to dominate, sparking indiscriminate selling across the stock market.

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The sentiment has filtered through to fast-growing private companies, which helps to explain why Augmentum has moved to a wide discount. In Questor’s opinion, this discount is unjustified.

Ben Mackie, a fund manager at Hawksmoor Investment Management, agrees. He says investors have incorrectly drawn parallels with listed fast-growing fintech names, which became richly valued last year and have since gone into reverse.

Augmentum Fintech vs FTSE 100

From 3 Jan to 8 Mar

Jan591113171923252731Feb68101416202227Mar37-30.0%-20.0%-10.0%0.0%

⬤ Augmentum Fintech PLC: 156.8 → 117.5-25.0%

⬤ FTSE 100: 7505.2 → 7190.7-4.2%

More share information on

As the trust takes a conservative approach to valuing its investments, Mackie says there is no need to fear a similar reversal among Augmentum’s holdings. He says a number of investments in the portfolio are currently valued at cost, even though the businesses continue to grow.

“I think the market lumping Augmentum in with public comparables is a little misguided because the portfolio never enjoyed the benefits of that rise in valuations among listed stocks. That should insulate and mitigate any risk of falls in the next NAV update,” he says.

Far from having concerns about the portfolio, Questor believes there is much to feel positive about. Fintech businesses owned by the trust continue to gain market share and to grow their revenues. They include Tide, a bank for small businesses, and Onfido, which provides fraud prevention software. Augmentum is also poised to profit from its stake in Interactive Investor, the investment platform, which will soon come under the ownership of asset manager Abrdn.

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The trust’s management team, led by Tim Levene, has decades of experience in private equity investing and as a result possesses the extensive networks of contacts crucial to getting access to the right potential investments. Since the trust’s flotation in 2018 up to its last NAV update at the end of September 2021, it had achieved an “internal rate of return”, a favourite measure of private equity investors, of 21.5pc a year on capital deployed.

Readers may worry that such a “blue sky” approach is risky, and they would be right: venture capital requires patience and is not for the faint-hearted. This is an important point to stress at a time when markets face great uncertainty because there is every chance that Augmentum Fintech’s shares remain volatile. Augmentum Fintech key facts Market value: £212m Year of listing: 2018 Discount: 17.3pc Ave discount over past year: 16.8pc premium Yield (March 2021): nil Most recent year’s dividend: nil Gearing (Feb 2022): nil Annual charge (March 2021): 1.9pc Expand to read moreIt is also a small trust, with a market value of just £212m, which means liquidity can be constrained at times of market stress. This is why a long-term mindset is essential.In spite of these challenges, Questor remains confident that the trend of digitisation will continue to gather pace, which should bode well for Augmentum’s assets. Consumers and businesses continue to reassess their relationships with banks and other financial services firms – and this can only benefit fintech businesses, which offer a fresh perspective, cutting-edge technology and the ability to digitise archaic and time-consuming processes.Advertisement“For the right kind of investor, it looks like a fantastic opportunity to buy a really interesting long-term investment,” says Adam Ross of Canaccord Genuity Wealth Management.This column agrees. Augmentum’s share price of 117.5p and wide discount offer an attractive entry point. This is one to buy for the very long term – but remember that there may be further bumps along the road. Questor says: buy Ticker: AUGM […]

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