Herald Investment Trust PLC · LSE:HRI
Herald Investment Trust — Shareholder Meeting (April 2023)
24 slides from Herald Investment Trust's shareholder meeting presentation, Apr 18, 2023
Slide 1: Herald Investment Trust plc AGM Presentation
Herald Investment Trust plc AGM Presentation 18th April 2023
Slide 2: Important notice on past performance
Please note that past performance is not a reliable indicator of future returns. You should determine for yourself what weight, if any, to place on such past performance. Markets and currency movements may cause the value of shares, and the income from them, to fall as well as rise, and you may get
Slide 3: Innovative technologies continue to open up new markets
Innovative technologies continue to open up new markets, presenting opportunities for small entrepreneurial companies to exploit. Investment prospects continue to be exciting in the long term . HERALD INVESTMENT TRUST 3
Slide 4: Herald Investment Trust Introduction
INTRODUCTION Herald Investment Trust (HIT) launched in 1994 Herald Global small cap TMT Investment Median market cap c. £185m Trust Significant provider of primary capital to emerging business, £645m since inception Long term performance - NAV up 22x Intellectual property important profit driver in
Slide 5: 2022 Highlights
2022 HIGHLIGHTS 2022 Highlights NAV UK IRR N AMERICA IRR -22.8% -25.6% -19.5% Return over 2 years from start of 2021 -8.2%, but a derating of over 42.0% in the P/E ratio of profitable companies. 2022 HIGHLIGHTS: PLACINGS PLACINGS IPOS TAKEOVERS* £21.4m 33 1 £95.7m Cash received - £125m * 2022 announ
Slide 6: HIT performance since inception 22x
2022 PERFORMANCE HIT performance since inception Total return rebased to 100 at Feb-1994 22x NAV TOTAL RETURN SINCE INCEPTION 11.3% NAV ANNUALISED RETURN SINCE INCEPTION HERALD INVESTMENT TRUST 6 Source: Refinitiv and Russell Investment Group to 31/03/2023
Slide 7: Performance figures – to 31st March 2023
YTD PERFORMANCE Performance figures – to 31st March 2023 Reporting Period: 31/03/2023 TWR 31/12/2007- Inception to date * 2023 Q1 2022 31/03/2023 TWR TWR IRR All figures stated as % returns TWR Annualised Annualised Asia* 4.1 -27.0 425.9 1,200.2 10.0 7.5 Europe Middle East and Africa 0.5 -26.9 835.7
Slide 8: 2022 Highlights and commentary
2022 COMMENTARY 2022 Highlights and commentary NAV Numis ex INV Trust plus AIM Russell 2000® Technology -22.8% -21.9% -28.4% • Concerning macro – interest rate rises, war, inflation, government deficits etc. • Consumer budgets under pressure, business budgets being scrutinised • Media concerns over
Slide 9: P/E by region
P/E BY REGION HIT Bloomberg estimate P/E by region from 2020 accounts Source: Herald Investment Trust Annual Report 2020 HERALD INVESTMENT TRUST 9
Slide 10: HIT Bloomberg estimate P/E by region & derating
P/E BY REGION HIT Bloomberg estimate P/E by region & derating Portfolio p/e by 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1 23 region UK 16.9 15.8 16.4 15.9 19.6 15.9 21.7 26.2 23.8 16.7 16.4 EMEA 14.9 13.4 16.3 17.5 21.4 17.7 25.0 34.9 33.3 24.1 25.4 Asia 9.6 12.3 13.2 13.1 14.8 16.3 20.7 2
Slide 11: HIT Geographical returns – 2020 to 2022
GEOGRAPHIC DETAIL HIT Geographical returns – 2020 to 2022 NORTH 70 UK EMEA ASIA HIT AMERICA 60.7 GEOGRAPHICAL RETURN* (STERLING, %) 60 57.9 53.8 50 46.8 40 37.0 32.4 30 22.7 19.4 19.0 20 10.9 10 2022 2022 2022 2022 2022 0 2020 2020 2020 2021 2020 2021 2021 2020 2021 2021 -10 -20 -19.5 -22.8 -30 -25.
Slide 12: Geographical weightings
GEOGRAPHIC DETAIL Geographical weightings GEOGRAPHICAL SPREAD OF INVESTMENTS AS AT 31 DEC 2022* NORTH UNITED AMERICA KINGDOM EMEA 21.8% 44.1% 10.8% 2021: 22.3% 2021: 11.4% ASIA 2021: 47.7% 11.2% 2021: 11.8% CASH & GOVT. BONDS 12.1% 2021: 6.8% *Comparative year figures to 31/12/2021 Source: Herald In
Slide 13: The landscape has changed
The landscape has changed HERALD INVESTMENT TRUST 13
Slide 14: Governments indebted, full employment limits GDP growth
MARKET UPDATE Governments indebted, including to their own central banks, full employment limits capacity for GDP growth... Debt / GDP Central Bank Assets / GDP Unemployment rate Dec 19 Dec 22 Dec 19 Dec 22 Dec 19 Dec 22 Eurozone 85% 93% 39% 62% 7.4% 6.6% France 97% 112% N/A N/A 8.1% 7.2% Germany 60
Slide 15: Energy shock from Ukraine war weighs on trade balances
MARKET UPDATE Energy shock from Ukraine war weighs on trade balances… UK trade balance comparatively strong. Source: Bloomberg HERALD INVESTMENT TRUST 15
Slide 16: Investing in an inflationary environment
MARKET UPDATE Investing in an inflationary environment • Pre Global Financial Crisis GILT yield +2% real return. Today real return c. –7%: • Certain technology companies have the ability to pass through higher prices In a world of inflation equities relatively attractive, technology and IP support p
Slide 17: Covid was a tailwind for the tech sector
MARKET UPDATE Covid was a tailwind for the tech sector in general, however led to: • Work from home. Initially effective, but ongoing challenges to get staff back to the office. California Bay Area particularly damaged. • Technology workforce bubble, particularly in California, caused excessive shar
Slide 18: Northern California bubble burst
MARKET UPDATE Northern California bubble burst Source: Austin Goes to Work: Kastle data (infographic by Catalogtree), Bay Area tech companies: infographic by Layoffs.fyi HERALD INVESTMENT TRUST 18 www.sfchronicle.com/projects/2023/tech-layoffs/, CBRE Group.
Slide 19: Supply issues
MARKET UPDATE Supply issues Shanghai shipping costs: The average wait time for a semiconductor chip was: 27 weeks in January 2023 ------------up from----------- 10 weeks in September 2020 Source: https://www.bain.com/insights/chip-shortage-recovery-has-turned-a-corner/ & Bloomberg HERALD INVESTMENT
Slide 20: How has the landscape changed?
MARKET UPDATE How has the landscape changed? • Staff churn normalising and pay demands falling as tech labour market cools. • Supply issues evaporating, albeit so are super normal margins for certain manufacturers. Lockdowns across the world a thing of the past. • Deglobalisation, reshoring and near
Slide 21: Silicon Valley Bank: Deposit flight = cash burn
MARKET UPDATE Silicon Valley Bank: Deposit flight = CASH BURN Slide taken from SVB deck: Mid Quarter update 8/3/22) Source: https://ir.svb.com/events-and-presentations/event-details/2023/Q123-Mid-Quarter-Update/default.aspx HERALD INVESTMENT TRUST 21
Slide 22: IPOs have fallen off a cliff, debt markets shut, VC dried up
MARKET UPDATE IPOs have fallen off a cliff, debt markets have shut and VC investment has dried up Funding environment significantly deteriorated; further issues expected following SVB troubles Source: J.P. Morgan: U.S. Mid- and Small-Cap Banks VC and Exit Markets Weekly (27 March 2023) HERALD INVEST
Slide 23: Valuations becoming more attractive
MARKET UPDATE Valuations becoming more attractive. Technology demand drivers remain: • Innovation continues • Leveraged PE balance sheets • Structural growth within tech sector • Revenue growth at any price • Non-discretionary nature of technology • VC exits spend • Speculative IPOs and SPACs • Recu
Slide 24: Potential buying opportunity
MARKET UPDATE Potential buying opportunity The dotcom bubble and GFC provided compelling buying opportunities. Can 2023 - 2024 create the same? Source: Refinitiv Datastream HERALD INVESTMENT TRUST 24
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