Specialist venture capital fund Augmentum Fintech (AUGM ) has expressed frustration at its 40% share price discount but is looking forward to ramping up investment activity this year after a flight of ‘tourist capital’ following the painful growth selloff in 2022.

Annual results today showed the investment trust’s resilient performance in the first half of its financial year continued in the second half with net asset value (NAV) after performance fees rising 2.4% to 158.9p per share in the 12 months to 31 March.

However, a 27.1% slump in the shares during the year left both board and fund manager Tim Levene wondering when the market will sit up and notice the strong growth from its core investments such as new digital challenger banks Tide and Zopa.

Levene found this decline in the share price ‘frustrating because it does not reflect the underlying performance or the potential of AUGM’s portfolio and seemingly gives little credit to the rigour of our valuations process’.

Levene said Augmentum’s top 10 holdings, accounting for 78% of the portfolio, grew revenues by an average of 117% year-on-year and raised more than $300m in capital, reflecting the ‘unabated advance of digital transformation in the financial services sector’.

Grover, the technology subscription platform valued at more than $1bn, is Augmentum’s biggest investment at 15.5% of assets. Despite the compression in tech valuation multiples, the trust saw the value of its stake in the Berlin-based company rise to £43.1m, up from £42.4m.

However, the read-across from falling valuations in listed technology stocks, weighed on the overall portfolio, leaving Levene to look ahead to a welter of opportunities as the founders of quality fintechs become more realistic about valuations.

‘Following the reset to private market valuations, this will be an exciting time to deploy early-stage capital,’ said Levene, who has studiously avoided overpaying on past investments.

Investment activity declined during the year to £19.9m against the average £36.4m the company has deployed each year since its launch in 2018. New investments included £4m in cross-border payment processor Kipp and £2.6m in cybersecurity specialist Baobab.

Following the profitable sales of pension provider Cushon and broker Interactive Investor, Augmentum has £50m of cash to plough into new investments and buy back its shares to narrow their wide discount.

Augmentum’s depressed shares

Source: Morningstar

Buybacks are good

Mick Gilligan of wealth manager Killick and Co urged Augmentum’s board to continue mopping up the trust’s shares while they were excessively cheap. He said the repurchase of 5.8m shares had not only boosted NAV per share by 1.1% in the financial year but had effectively slashed total running costs borne by shareholders from 1.9% to 0.8%.

‘That is a material benefit and should not be overlooked,’ Gilligan said. ‘For me, buying back stock should not be about controlling discounts. If you are a long-term investor, and anyone in AUGM should be, then discounts will come and go. Instead, the discount offers an opportunity to buy an attractive portfolio at a cheaper price than it is currently valued and to enhance NAV in the process.’

Augmentum’s 40% discount is slightly narrower than its peer group of other growth capital funds which trade at 45% below asset value, according to Numis Securities data. The gap between the NAV and share price means that while the investments have generated a total return of 56.6% in the past five years, shareholders have suffered a 2% drop in the shares.

The stock rose 1.4% to 99p today on the hope that this undervaluation could start to reverse once the outlook for interest rates and the economy becomes clearer.

Neil England, the trust’s chair, urged investors to hold on. ‘Your board believes that the company will see a closing of the discount at which its shares trade over time and, with the underlying growth of the portfolio generally being very strong, expects that patient shareholders will be well rewarded,’ he said.

An end to the bear market could also precipitate a payday for Levene and his team. The results showed Augmentum setting aside £16.5m for a performance fee for the fund manager, up from £15.3m last year, which could be paid once market conditions improve.