Seraphim: Is it the right time to invest in space at a big discount?

Last year, Star Trek’s William Shatner became the oldest human to travel to space as part of Jeff Bezos’ space mission. Rather than feeling elated about the experience, the 90-year-old likened it to a funeral.

The Blue Origin mission arrived at a time when space and tourism are an exciting new prospect for investors, alongside a race for dominance in the satellite industry.

Bezos isn’t alone in wanting a slice of the action. Sir Richard Branson and Elon Musk have also competed to be the first to offer manned spaceflight.

As a result, there is a proliferation of opportunities to invest in companies involved in aerospace and satellites and it is estimated that the industry could generate more than $1 trillion in revenue by 2040.

Last year, Seraphim Space Investment Trust became the first to focus on space technology in London.

Unfortunately, it has not been immune to the volatility experienced in technology stocks and the broader market.

Are investors, like Shatner, no longer in love with space? Or is it just a bump in the road?

We look at Seraphim’s performance this year and whether space remains an investment opportunity.

Back to earth: Seraphim’s share price initially rose and then fell

How has Seraphim performed since its IPO?

Seraphim Space Investment Trust noted to much excitement last summer. It was the first time that an investment company focused solely on space technology was listed on the London Stock Exchange.

The trust, chaired by former Virgin Galactic boss Will Whitehorn, has raised £150m from the IPO. Since the listing last July, there have been huge developments in the industry as space tourism has become a reality.

Unfortunately for Seraphim, it has been a difficult year as central banks raised interest rates faster than expected, dramatically curbing investor interest in growth stocks, especially those not making a profit.

In its full-year results released this week, Seraphim noted a £4.3million after-tax revenue loss in its first year and said it did not expect to recommend a dividend in the foreseeable future.

Figures from the Association of Investment Companies (AIC) show that Seraphim’s net asset value – the total value of its investments – has increased by 1 percent, but its share price has fallen by 51 percent. It is now trading at a 48 percent discount to its net asset value.

Whitehorn said, “Inevitably, the company’s stock price has not been immune to the significant volatility global equity markets will experience in 2022, and in particular to the heavy declines associated with growth and technology stocks.”

The board of directors had considered a share buyback to narrow the wide gap between net asset value and share price, but said it was “in the best interest of shareholders to reserve the company’s money to support the portfolio.” ‘.

Will space still prove to be a popular investment theme?

The timing of Seraphim’s IPO was unfortunate. Private investment in space has been impacted by the broader macroeconomic environment, as interest rates and inflation continue to rise.

A recent report from VC firm Space Capital found that current market conditions are affecting financing in deep tech. This quarter, $3.4 billion was invested in 79 aerospace companies, down 44 percent from the same period last year.

However, analysts expect the broader trend of space investment to continue.

Morgan Stanley estimates that revenues generated by the global space industry could rise to more than $1 trillion by 2040, up from $350 billion today.

Space exploration has come a long way since the first trip to the moon nearly half a century ago, with more private funding, better technology and growing public sector interest.

It has sparked the interest of some of the world’s most successful businessmen, such as Sir Richard Branson, Elon Musk and Jeff Bezos.

Branson’s Virgin Galactic became the first commercial space tourism company to go public in 2019 via a special acquisition vehicle SPAC.

While it has faced some teething problems, it is widely expected to launch commercial flights by the end of the year. Bezos’ Blue Origin plans to build a commercial space station with a hotel.

While human spaceflight is making headlines, there are plenty of opportunities in other areas, such as satellites that provide broadband, which helps to lower the cost of data.

Elon Musk’s SpaceX, which is still a private company, is sending satellites and humans to space

The Russian invasion of Ukraine has also revived calls for further investment, especially in satellites.

Morgan Stanley estimates that satellite broadband will account for half of the global space economy by 2040.

Musks’ SpaceX – in which investment company Scottish Mortgage has a stake – and UK-based OneWeb have already launched small satellites into low Earth orbit.

Interest in satellites has certainly increased in the public sector as governments around the world consider how to best use them.

Whitehorn said: “As governments are key clients of many portfolio companies, we expect this to provide some protection against potentially reduced demand in the commercial sector in the face of rising inflation and interest rates.”

Seraphim himself invests in All.Space, which makes antennas for satellites and satellite analysis company Planet Watchers.

Is Seraphim a Good Investment Opportunity?

Seraphim is uniquely positioned to capitalize on the race to space, largely because of its structure as an investment company.

Mick Gilligan, partner at Killick & Co said: “Space is an interesting investment area and one that should attract a lot of capital in the coming decades. Many space-related investments are in a very early stage and are likely to require several rounds of financing before reaching maturity.

“As a result, the mutual fund structure is ideal, as it allows for a patient investment approach and reduces the pressure on investment managers to sell investments too early, which traditional venture capital funds are typically forced to do given their limited lifespans.”

A key feature of mutual funds is their ability to borrow money — or borrow additional money — in addition to shareholder capital to grow capital.

“Scottish Mortgage has taken advantage of this return asymmetry over the years with its investment approach and, interestingly enough, it already has a number of space-related investments (rocket manufacturers, SpaceX and Relativity Space), although they only make up about 2 percent of the SMT portfolio,” he said. gilligan.

Seraphim is trading at four times the discount of Scottish Mortgage, meaning it will struggle to raise more capital.

Gilligan says: “More capital will be needed to meet subsequent capital requests and to bring in new investments. This is an investment for patient investors, so we need to take the time to drive more revenue growth and valuation increases.

“But if the discount lasts for a long time and begins to hinder the ability to meet follow-up actions, the pressure to address it will increase. The managers could always try to make partial exits to ‘prove’ the NAV. However, it is still very early.

“This is a high-risk investment proposal, given the very early nature of the sector and the companies operating in it. It’s one for high-risk investors and should only make up a very small part of a total portfolio.”