Prelude Trust grows portfolio value but managers miss performance options
The portfolio of Prelude Trust plc (PDT.L), the investment trust that specialises in early stage, technology-based businesses, grew by 2% to £54.8m in the year to end March.
This was the result of an increase in the fair value of escrow amounts, which had been held against previous realisations on investments and a net growth in the portfolio valuation. The Net Asset Value (NAV) by financial year end was the equivalent of 145p a share compared to 142p the year before.
Chairman Michael Brooke said that "although NAV per share increased during the year, the growth was below the level required for further Performance Options to be awarded to the Manager's [Prelude Ventures] Employee Share Option and Incentive Scheme Trust".
The Trust rules state that the hurdle rate for issuing options is an increase in NAV per share of more than 8.33% a year compounded annually since the launch of the Trust in 1997. Upon any option grant - as had been the case - the NAV per share used then sets a ‘high water’ level such that subsequent options will only be granted for NAV per share growth in excess of the “hurdle” and also above the earlier ‘high water’ level.
In April, Prelude Ventures said it planned to merge with Cazenove Private Equity to form a new independently owned venture fund manager. The Cazenove team is spinning out from its parent company Cazenove Capital Management and the merger is expected to complete in July.
Mr Brooke said: "The Board strongly supports the merger …, believing that the larger team's broad investment experience will benefit the Trust. With the changes approved by shareholders, the Trust is now well positioned to continue investing in and developing further young technology companies with the potential to become global leaders in major new emerging markets".
Investments realised
In the past financial year, the Trust realised £5.6m from the sale of its remaining shares in Broadcom, the partial release of deferred receipts deriving from the 2004 trade sales of Alphamosaic, DNA Research Innovations and Fillfactory and the repayment of a loan made to 3Way Networks. Additional disposal proceeds, conditional upon milestones or held in escrow to cover possible warranty claims, total £4.7m but were valued at £4.4m in the accounts.
Tthe Trust invested a further £8.5m in seven existing and three new portfolio companies. The new companies, into which £4.5m was injected, were SiConnect and Lime Microsystems, both early stage semiconductor firms while Oxford Immunotec has early revenues from its proprietary diagnostic tests for tubercolosis.
Since the end of the financial year, the Trust has invested £0.4m in ZBD Displays Ltd.
Fair value reductions in the books totalling £1.4m were made against De Novo Pharmaceuticals Ltd and Kiadis BV. NanoMagnetics Ltd entered administrative receivership in January and the investment, which had been valued at £849,000 at the end of March, was reduced to nil in the accounts.
At 31 March, the Trust portfolio comprised 11 active unquoted investments, including eight with revenues, one of which was new entry Oxford Immunotec.
While challenges remain, Mr Brooks said, these companies are developing well and their products and technology are identifying them as potential winners in their chosen markets. Prelude Ventures is confident that a number of these companies are, or will become, attractive acquisition targets or candidates for initial public offerings.
Mr Brooks said deal flow was currently strong with new investment opportunities coming through.
The Trust's share price shed 2p to 118p today. This means it is trading at around an 18% discount to the NAV, perhaps not unreasonable for a trust investing in unlisted high tech companies.
Tender Offer to be replaced
Prelude also announced that a glitch that would caused a breach of the Companies Act had been discovered over the weekend if they had proceeded with the offer to shareholders to tender shares for repurchase by the Trust.
It has therefore withdrawn the Tender Offer but will make arrangements for a new tender offer on substantially the same terms - that is for £5m of ordinary shares to be purchased at 135p each.
22nd May 2006
(Esprit Capital Partners)
