I’m a big fan of fund of fund turned life sciences specialist Syncona. I’ve written about it in the Financial Times, and own a fair amount of shares in this investment fund. My core contention is that the funds new emphasis on investing in outfits trying to beat cancer will result in a valuation shift. Traditionally as a fund of fund its traded off a small premium of book value. Most life science based VCs tend to trade at huge multiples to NAV: the IP Group market cap is £922m versus hard NAV of £706m, BTG market cap £2690m vs nav of £979m, Touchstone £451m versus £382m.
Investors have started to recognise this new narrative about Syncona, and the shares currently trade at a premium of 14.8%, which I feel is probably about right for now. That premium might start to move closer to that of say IP Group if the fund starts to produce some real tenbaggers, so investors need to watch both deal flow and NAV uplifts.
On this score there’s some good news today from Syncona which does add credibility to its strategy. According to Numis, Syncona has “ invested $12.5m (£9.8m) as part of NightstaRx’s $45m Series C investment round. As a result of the fundraising, the valuation of NightstaRx (Nightstar) has been written up by £20.3m, equivalent to 3.1p per share or 2.3% of net assets. The write-up represents a 51.3% uplift on valuation of £39.6m (30 April valuation of £38.0m plus £1.6m Series B fundraising). Including the addition investment, this results in a valuation of Nightstar of £69.7m, representing 7.6% of net assets.”
My guess is that if we see a few more deals like this we could see the premium drift a tiny bit higher to 20%.