An earlier version of this article was published in the November 2020 Shareholder Update.
Bailador Technology Investments [ASX:BTI] currently trades at a discount to NTA, as do most Listed Investment Company (LIC) structures on the ASX. However, BTI is differentiated from all other ASX-listed LICs in that it invests in private technology companies. BTI’s international comparables more often trade at a premium to NTA.
Comparing a business to others with similar characteristics is an essential tool for valuation. In many cases there are a number of “like businesses” trading in the local market to analyse, but in some cases the answer lies further afield.
Although Bailador is one of over 115 LICs on the ASX, our investment strategy and investment portfolio is truly unique. However, as the chart above shows, there are a number of UK-listed funds directly comparable to Bailador which trade on average at a premium to NTA.
These UK-listed funds are comparable to BTI because:
BTI shares all of these characteristics.
Tellingly, seven of these nine UK-listed funds trade at a premium to NTA, including some significantly above their reported NTA valuation. This is not a surprise to us given the UK-listed private equity market has been around for much longer, has a greater level of investor following and analyst coverage and, of course, a number of readily observable comparable funds available to help investors gauge what is a fair market valuation.
A number of these UK funds have developed a track record of third-party investments into their portfolio companies and realisations at valuations greater than their NTA carrying value. BTI has also been developing this track record of transactions above NTA carrying value.
There have been 24 third party transactions in the BTI portfolio companies – all 24 transactions have been at or above NTA carrying value, including five partial cash realisations:
We believe that financial markets will come to appreciate the conservative nature of the BTI NTA as empirical evidence builds. While our analysis suggests that BTI could trade at a premium to NTA, we believe the “lightbulb” moment is likely to be a significant full cash realisation of a portfolio investment above NTA.
Applying the 17% average premium from the UK comparables to the NTA of BTI would result in a price per share of $1.77, or 33% higher than the BTI share price on 30 June 2021.
By David Kirk & Paul Wilson, Bailador Co-Founders & Managing Partners