Seraphim Space Investment Trust Plc (SSIT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Seraphim Space Investment Trust Q1 Results Webinar. I will shortly hand over to the Chief Executive, Mark Boggett; Chief Investment Officer, James Bruegger; Chair, Will Whitehorn; and Chief Operating Officer, Sarah Shackleton, to run through the results presentation. [Operator Instructions] I will now pass you on to Will to begin the presentation.

Good morning, everybody. I mean only a short period of time has elapsed since the release of our full year results, but for Seraphim Space Investment Trust, all the trends we identified there, from the rapid growth in the number of satellite launches, the industrialization of space and the improvement in the contracts available to many of the companies in our portfolio, all those trends have continued. But there has been a significant development following the outcome of the U.S. presidential election. For a start, markets have responded positively generously and with the U.S. dollar has strengthened. And technology and defense stocks in particular have been beneficiaries of this, and SSIT has been part of that. We've seen a surge in share prices on both sides of the pond in those sectors. And SSIT itself is up 10% since the period end that these results refer to, this annual report refers to. And although the Trump presidency is still many weeks away, not beginning until January, the market is already expecting defense and tech stocks, particularly space as well, to be central to his policy agenda. And with Elon Musk assuming a senior advisory role in the government, we believe the outlook for the space domain has moved up several years. There is also anticipation of significant geopolitical developments, particularly in Europe, and in response to Trump's stance on the Ukrainian conflict and NATO's increased defense commitments to address the U.S. subsidy issue, which Trump has raised on several occasions. So it remains difficult to see exactly how Europe will react, both as individual countries in Europe and collectively, to the shift in U.S. policy, but we believe the outlook for SSIT is positive. Since the period end, the U.S. dollar has strengthened following the U.S. election, as I said. And based upon the current USD/GBP exchange rate of 1.253 on Friday the 22nd, the portfolio's fair value has increased almost GBP 10 million, to GBP 208.2 million, and GBP 198 million using the 30th September exchange rate. That's a significant difference. Some of the U.S. listed companies in the portfolio have seen considerable share price appreciation, with the combined value of AST SpaceMobile, Spire Global and Arqit alone rising by 2.7 million as of the 22nd November compared to the 30th September valuation. I'll now hand over to Mark and the team for a more detailed overview. Thank you.

Thank you, Will. Good morning, everyone. And before we go into today's report, I wanted just to take a step back to remind folks about the big picture for Seraphim. Seraphim is the most prolific investor in the space market globally, with a portfolio of over 100 SpaceTech companies across both our public and private portfolios. We were the first VC to launch with a space fund in 2016, and SSIT represents the one and only listed investment fund focused on space globally. Our partners and backers include some of the biggest space corporates globally, and we continue to receive a massive global deal flow, seeing virtually all deals at all stages in the space sector, and this provides us with an information asymmetry. We triage deal flow between early and late stage, with early stage going to our affiliated accelerator program focused on seed stage SpaceTech companies, our venture fund focused on early stage, and the later-stage opportunities going to SSIT. We're a value-add investor, we're a hands-on investor. We typically join the Boards of most of the companies that we've invested into, and this allows us to be able to build conviction over time. Information asymmetry and conviction are the bedrocks of our past and hopefully future success. So now let's turn to the quarter results, starting with the headlines. So as at the 30th of September, NAV was at 53.7p with net assets at GBP 223 million. As per the right-hand chart, SSIT rebased over the year against the AIC growth company peer group. So this includes private growth trusts like Chrysalis and Schiehallion. We've seen significant volatility in the SSIT share price during the year, with SSIT closely correlating with the other AIC peer group in recent quarters, but underperforming during the quarter to the 30th of September. However, during this presentation, I hope to convincingly explain why SSIT will be well positioned to close this gap, as SSIT has a clear and increasingly evidenced drivers that mark us out differently to the generalist tech nature of that AIC peer group. So taking us further into the detail, let's start with the attribution analysis table. So the value of the portfolio decreased from GBP 201 million to GBP 198 million during the period to the 30th of September. As per the chart, GBP 3.8 million investment in follow-on ALL.SPACE during the quarter. And we also recycled the Astroscale holding with a further disposal leading to proceeds of GBP 3 million and a realized loss of GBP 0.9 million. Largely thanks to the increase in the share price of AST SpaceMobile, there was a GBP 6.1 million increase in unrealized fair value. However, these gains were then offset by an unrealized FX loss of GBP 9.1 million during the quarter, which resulted in the fair value of the portfolio falling to GBP 198 million at the end of the period. Now as noted by our Chairman, Will Whitehorn, in his introduction, the subsequent U.S. elections have meant that the U.S. dollar has strengthened significantly. And as a consequence, this FX loss for the quarter has been more than reversed to date, subsequently the fair value increasing by nearly $10 million to GBP 208.2 million. Next turning to the balance sheet as of the 30th of September. This table sets out the NAV bridge. Here, the GBP 5.3 million NAV loss for the period has been reversed post period by the FX changes reported to a positive GBP 4.7 million. This takes the closing NAV from GBP 222.9 million to GBP 232.9 million. In relation to KPIs, this slide draws out the key figures. But these figures are broadly figure -- broadly similar to those reported in the full year results. The key stat to draw out here is that 58% of the portfolio based on NAV is either EBITDA positive or will reach EBITDA profitability on funds already raised, and this is based on management's own forecast. The business and the fund are well financed for the year ahead. This next slide looks at investments made during the period, and in this case just 1 investment. We invested GBP 3.8 million, $5 million, into a follow-on investment in ALL.SPACE, which is a U.K.-based antenna manufacturer. During this time, ALL.SPACE announced a successful $44 million fund raise led by BOKA Group, and we participated then in that round. Also during the period, the company appointed Paul McCarter as CEO. He transitioned from his previous role as COO to enhance the manufacturing scalability and strengthen customer engagement. And for those of you that joined our recent Capital Markets Day Webinar, Paul joined the panel and discussed the outlook for the year ahead. He was particularly positive given ALL.SPACE's strategic focus on the defense market, and particularly the focus with customers in the U.S. Department of Defense. And in light of Trump's positioning on defense and space initiatives, he believes that the company is well positioned to capitalize upon opportunities that relate to contracted customers in the U.K.; our most important market, the U.S.; but in EU as well. This next slide focuses on divestments, of which there was 1 during the period. So following the disposal post the IPO of Astroscale in June, where we sold shares in the company equivalent to 40% of the SSIT holding for GBP 3.5 million, in this period SSIT disposed a further 551,000 shares, and then, outside of the period, a further 78,000 shares, and this resulted collectively in GBP 3.5 million of cash proceeds. Next, we turn to key developments during the period. ICEYE, our largest company, 20% of NAV, won a 5-year contract with NASA to provide data to its -- from its satellites to support NASA's Earth Science Division. And also during the period, ICEYE announced a multi-satellite landmark deal with the Greek government. So this is the third government contract that it's announced recently. D-Orbit, 15% of NAV, reached final close on its EUR 150 million C Series funding round. This important round will allow D-Orbit to continue developing its ION Satellite Carriers. These are its space taxes with 7 launches planned for 2025. Additionally, the funding will accelerate its collaboration with government and space agencies and will be used to make strategic acquisitions to broaden the company's product set. U.S. defense company HawkEye 360, the leading player globally in signals intelligence, announced that its latest 6 satellites launched were all functioning correctly and operational. This extra capability is meaningful to the capacity demand that this company is under given the importance of its signal analytics capability to the U.S. defense and other Coast Guard and national defense agencies. AST SpaceMobile had a great quarter following the confirmation of the successful deployment of its first 5 commercial satellites following their launch on the 12th of September. These are cell towers in space that will allow the company to communicate directly with any smartphone providing 5G to any smartphone handset. On the back of this news, the share price saw 125% uplift over the quarter to $26 as at the 30th of September. Skylo is another of our direct-to-mobile from space companies. They were chosen by Google as the exclusive partner to provide satellite connectivity to its flagship Google Pixel 9 mobile phone. And then in addition, Verizon, the largest mobile network operator in the U.S., they partnered also with this company to provide its satellite-based emergency services direct to the handsets of its customers. So these are great examples of how space is playing an important role increasingly with the leaders within the technology market. This is a theme that we continue to focus on going ahead. We've addressed the biggest news post period in relation to the strengthening of the dollar. The U.S. dollar increase post period resulted in portfolio valuation of GBP 208 million based on the U.S./GBP rate as of the 22nd of November. The aggregate fair values of AST SpaceMobile, Spire Global and Arqit were worth GBP 2.7 million more on the 22nd of November than at the end of the period. The notable events during the period include Spire Global, which is listed on the New York Stock Exchange, who sold their maritime business for $241 million to Kpler, and they'll be using the proceeds to eliminate their debt. The shares responded positively, raising 40% on the news, and they're up 66% during the -- post the period end. Arqit, listed on NASDAQ, announced that they've got a new CEO and the shares rallied nearly -- just over 300% since the period end. And then finally, D-Orbit won a EUR 120 million contract from ESA to provide in-orbit servicing, whilst Pixel showed off its next-generation satellite capability, marking the highest resolution capability in the global multispectral market. So this slide provides a snapshot of the portfolio. No significant changes to report. The portfolio is still broadly spread between the U.S., U.K. and Europe, and the majority of the assets are focused on later-stage growth companies. The top 10 accounts for 76% of NAV with GBP 25 million in cash, that's 11% of NAV, and we believe that this is sufficient cash to support the needs of the portfolio over the year ahead. So this is now my final slide before we open to Q&A. So investment in SpaceTech remains resilient. We've seen an increase for the fifth consecutive quarter, with $8.8 billion of private capital invested in the year to the 30th of September in the global space domain. Now one of the most notable developments in the first half of the calendar year was that Chinese SpaceTech investment surpassed that of the U.S. for the first time ever. However, in the most recent quarter this trend was reversed, with year-to-date investment from the U.S. at 2.7 billion compared to China's 2.1 billion. So another big event during the period was that China has entered the global race to deploy a large satellite network, launching the first 18 satellites of its Thousand Sails megaconstellation. This ambitious project is aiming for a total of 1,300 satellites, and it marks China's initial efforts to create a Starlink-like network in low earth orbit. So looking further ahead to the year ahead, these strong Chinese investment figures will be keenly watched by the new U.S. administration and are likely to be a key driver in budget setting for NASA and DoD in the year ahead. And whilst it's too early to fully gauge the impact of the new U.S. administration, we believe that the overall outlook for the space sector remains very positive. The previous Trump administration initiated significant changes in the space landscape, including the establishment of the Artemis program, the relaunch of the National Space Council and the creation of the U.S. Space Force. Moving forward, we expect Artemis to gain momentum, and the President-elect has expressed a strong interest in establishing a U.S. Space National Guard. In Europe, we anticipate that NATO members will increase their defense commitments, responding to Trump's calls for them to enhance their own capabilities rather than relying solely on the U.S. The increase in defense spending is likely to channel a substantial portion into the new space initiatives and into our portfolio companies. We also expect that a buoyant defense sector will lead to a strong pickup in M&A activity, which again, we think, could be beneficial for the portfolio. Thank you again for your attention today. I'm now going to take questions, and myself, James Bruegger and Sarah Shackleton will answer them.

[Operator Instructions] The first one we have here is, "There have been some large fundraises from significant portfolio companies over the past few quarters. Why have none had any meaningful impact on the NAV?"

James, do you want to take that?

Yes, I'll take that. They have had an impact on NAV on an individual basis where those rounds have been priced. So case in point, the D-Orbit rounds that we reported on in the last 2 quarters, you'll see from our results, has resulted in a significant increase in the fair value of the holding of D-Orbit, whereas other companies such as ICEYE that have announced significant rounds and where those rounds such as the ICEYE rounds were unpriced. So in the case of ICEYE, it was a form of pre-IPO funding, so a convertible instrument, and under the valuation guidelines that we adhere to, we therefore don't automatically reflect a change in NAV by virtue of the company having raised money. So it's very much on a case-by-case basis. Where those rounds have been priced, they do typically flow through into changes in fair value and hence NAV.

And the next question we have here is, "Given the positive change of sentiment in the space sector, a limited share repurchase program may prove more effective now at sustainably closing the discount to NAV. Will the Board consider this?"

Sarah, do you want to take that question?

Yes, I'm happy to. Thank you. So the Board does consider frequently all the uses of cash for the portfolio, be it to invest in new companies, to follow new rounds of -- follow-on rounds for existing portfolio companies, and also consider shares repurchases. At the moment, with still relatively limited cash, the decision has been to try and keep following on in portfolio companies where it's required and looking at select new opportunities.

Will, you're on mute. I can see that you're commenting there. Still on mute.

Just to add to that, so the Board do keep buybacks under constant review. And if the opportunity was right and the cash situation was right, we would consider it, but we're not actively at the moment. Thank you.

The next question we have here is, "Given the wide discount of share price to NAV, when does management believe that the share price will return to above the GBP 1 IPO price?"

James, do you want to take that?

Much as I would love to have a crystal ball that can accurately predict the future, and unfortunately we don't, even if we are in the future prediction game by virtue of being VC. So there's clearly two elements to this. So there is the NAV, which has continued to remain robust in the period since we IPO-ed. And we would anticipate further NAV growth in the year ahead, given the secular tailwinds that we've been referring to and also the very strong track record of our companies in continuing to access money in the face of pretty challenging funding environments. The share price itself and the discounts are clearly not things that are within our control. I would remind everyone that if you're looking across the investment trust landscape, and specifically those analogous trusts that are focused on growth, significant discounts are typical, unfortunately, across the board, given current market conditions. So for the share price to return to the GBP 1 IPO price and indeed surpass it, we're clearly going to need to see that discount narrowing, and that, we would hope, will occur as market sentiment more generally returns to the market. And as we've commented on today, and there has been a broadly positive reaction to the news that President Trump has been reelected. And we therefore look forward with a reasonable degree of optimism into 2025, but specific timing, markets will decide, and -- as and when -- as and when it returns to GBP 1.

Thank you, James. And this appears to be the final question, unless any new ones come through: "In VC generally, there seems -- still seems to be a large difference between the public market and private valuations. Do you see a similar difference in the valuations in the space sector?"

James, do you want to comment?

I guess short answer is yes. I don't think the dynamics between space versus general tech more broadly in terms of valuations are particularly different. I would caveat that, though, that typically where public market valuations may be different relative to private markets, that is particularly true, both within space and our own portfolio and general tech more broadly, where companies went public via SPACs during the period of 2020-2022. There are very specific dynamics around any business that went public via SPAC, including the pressure on recycling the capital that was put into those vehicles as part of the SPAC mergers, that has led to price depression across the board. And that pricing dislocation has still not worked itself out. as evidenced by valuations in both our portfolio and elsewhere. So we do continue to assert that trying to do a direct read across from companies that have gone public via SPAC into the private markets is very, very difficult to do.

We have another question here which is, "How significant do you see ALL.SPACE being in contributing to NAV growth next year?"

Well, as I've said, we don't have a crystal ball. What I would say is you can clearly see from the report that ALL.SPACE remains one of our most material -- material holdings that we believe is well positioned as we look ahead, and that, should the company progress as we anticipate, that there is a reasonable prospect that that should translate into increases in the carrying value of our investment.

And one final question, which is, while we have time for today, I believe, is, "Given the change in sentiment, do you foresee IPOs and significant liquidity events taking place next year for some of the larger portfolio companies?"

I don't think our guidance on this has changed since the annual results where we characterized our more mature portfolio companies, for the period ahead, really being focused on two things: driving continued top line growth; and transitioning into becoming EBITDA profitable. And I think it's particularly, once the businesses have established themselves as operationally profitable, that potential exits, be those flotations or M&A events, are likely to become more apparent. Albeit, to the point of the question, given the changing landscape, we are predicting more broadly within the space sector that we would expect to see an increase in M&A activity, and it is of course possible that some of our companies, as leading protagonists within the domain, could become acquisition targets for potential acquirers, or indeed could become the acquirers themselves, in efforts to potentially consolidate parts of the ecosystem.

That marks the end of the Q&A section. I'll now pass back to Mark and Will for any closing comments before we end the webinar.

So I think I'll end where we started off, really, which was Will talking about how the U.S. presidential elections has really put focus on defense and space. We've seen the strengthening of the U.S. dollar has already had a big impact on the portfolio. And we've been pretty consistent in the past couple of years and the past couple of quarters talking about how well financed the companies are and how they're focused on the defense market. Now that positioning, I think, is really going to come to play out in the year ahead as the budgets increase significantly both in the U.S. and Europe, and our companies are really well positioned because they're at cutting edge of providing new forms of data and new forms of capability that are very much in demand. So we're really positive about the outlook for the year ahead.

I will simply add to that that we're looking at a year ahead where there is going to be an increased emphasis amongst all governments on space. For the defense reasons we've just mentioned, and in addition to that, there is going to be the climate element to the growth of the space industry. And in fact, we're seeing the world's first space expos open to the public happening in 3 continents next year. Nobody would have thought you'd do an expo based on one industry of this type, but the public reaction to space is definitely up many ticks from a year ago. Thank you.