Business Overview
Draper Esprit Plc (LON: GROW) is the UK based venture capital firm that invests in disruptive, high growth technology companies. The company mainly invests in four sectors, i.e. consumer technology, enterprise technology, hardware and deep technology and digital health and wellness. The company’s core portfolio includes companies such as Graphcore, Trustpilot, Peak games, Ravenpack, Smava, etc.

Recent News
On November 26^th, 2019, the company announced its half-year results for the financial year 2020 with half year ended on 30^th September 2019.

Financial Highlights – H1 Financial year 2020 (30^th September 2019, GBP, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2020, the company’s gross portfolio value increased by 15 per cent to GBP 683 million as compared to GBP 594 million in the second half of the financial year 2019 due to investments made during the period, steady growth across portfolio companies and cash exits. The NAV per share of the company increased by 10 per cent to 574p due to the positive performance across the portfolio, combined with strong financing rounds. The company’s gross portfolio fair value grew by 12 per cent due to the investments made during the period. The company’s profit after tax increased to GBP 59 million as compared to GBP 39 million in the first half of the financial year 2019.

Share Price Performance

            
   
Daily Chart as on 27^thNovember 2019, before the market closed (Source: Thomson Reuters)

On November 27^th, 2019, Draper Esprit Plc shares were trading at GBX 480 at the time of writing before the market close (at 12:40 PM GMT), up by 2.78 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 625/GBX 405. The stock has plunged 15 per cent during the previous year. However, the company’s share price is recovering, giving positive returns of 1.5 per cent and 4.24 per cent in the last one month and three months respectively.

Valuation Methodology

*Peers: Codemasters Group Holdings Plc, Frontier Developments Plc, Keywords Studios Plc, NCC Group Plc, Sumo Group Plc, Team17 Group Plc and Ten Lifestyle Group Plc

Conclusion
During the first half of the financial year 2020, the company has delivered a good financial performance. The company has invested in five new companies and nine existing portfolio companies, increasing its total number of investee companies to 57. The company deployed GBP 42 million into new and existing companies in the first half of the financial year 2020. Though the financial performance has been good, it was mainly driven by trading gains across their portfolio. There are some principal risks in the business of the company. The investment portfolio businesses are at an early stage and carry inherent risk in the current challenging market conditions. Another risk could be that their portfolio value may be dominated by a single or limited number of companies which could impact the company’s margin significantly. The company would hold non-controlling interests in the investment portfolio businesses. Fluctuation in the foreign exchange could affect the profitability of the company. The Brexit risk can impact the overall financial performance of the company. Cybersecurity risk can hamper the company’s reputation and affects the operations of the company.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 486.90 (as on 27^th November 2019, before the market close at 9:15 AM GMT), with support from few catalysts needs to be evaluated at a later stage.
 
 
*All forecasted figures and information have been taken from Thomson Reuters.

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