Glossary

 

Average write-down

A write-down is an accounting term for the reduction in value of an asset. The amount of the write-down is the difference between the book value listed on the balance sheet and how much you could recover from it now that the asset’s value has been reduced.

Benchmark performance

For those companies in the private portfolio earlier in their operational lifecycle a trading multiples approach will likely not be appropriate and introduce extra volatility into the valuation. In these circumstances the valuation of the private investment is influenced by the share price movements of its selected public peer-set or sector specific indices. In constructing a peer-set the aim is to ensure that there is sufficient market and geographic exposure, similar business models from the public comparators and growth profiles that best align with the private investment being valued to ensure that the peer-set is the most appropriate benchmark for valuation. This methodology will also factor in milestone events at each company and consider how they may impact the valuation.

Buybacks

When a company buys its own outstanding shares to reduce the number of shares available on the open market. This typically takes place when a Trust is trading at a discount.

Capex R&D to sales

The ratio of the proportion of capital expenditures (Capex) a company spends on research and development (R&D) vs its total sales. It is used to evaluate a company's investment in R&D and its ability to generate revenue from those investments.

Cash on hand

The amount of money accessible by a company when required for unexpected expense. It can include cash, short-term liquid investments, or liquid assets that can be converted to cash.

Discount of share price to NAV

When the market price of an exchange traded security (for example an Investment Trust) is trading below its daily net asset value (NAV).

EBITDA

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is an accounting method to calculate a company’s total profits (or earnings). It’s used to measure the cash generated by a business. It provides an indication of funds that can be invested in the business, used to pay debts or returned to shareholders.

EV to EBITDA

Enterprise value to EBITDA. EV is equal to its equity value (or market capitalisation) plus its debt less any cash. The resulting multiple is used to determine the relative value of companies.

FTSE All-World Index

The FTSE All-World index is an international equity index, which tracks stocks from developed and emerging markets worldwide.

Gearing

Gearing is the ratio of a business’s or investment trust's capital in relation to its borrowing. If a business is taking part in gearing, it borrows money to fund operations. Gearing is commonly used with investment trusts where the company borrows to increase the potential for a gain from an investment.

Gross Profit Margin

Gross profit margin is the profit after subtracting the cost of goods sold (COGS). In other words, a company's gross profit margin is the money it makes after accounting for the cost of doing business.

Initial transaction/ price of recent transaction

An initial transaction is the basis for valuation where SM has participated in a recent funding round in any of the private investments.

As we move away from the transaction date, additional work is performed utilising the methodologies above to ensure that a recent transaction price remains the best proxy for valuation. Should these methodologies indicate no meaningful change in valuation this provides sufficient evidence to value in line with the 'Price of recent transaction’. As part of this process, the arm's-length nature of the raise is assessed.

Invested gearing

It is the amount of borrowing that an investment trust has undertaken, expressed as a percentage of its net asset value. It represents the amount of debt that a trust has used to invest in additional assets.

Investment trust

An investment trust is a closed-ended fund, and just like any other fund it holds a portfolio of underlying investments. The key difference from many other funds is that an investment trust is an independent company (plc), so its shares can be bought and sold on an exchange.

IPO

An initial public offering (IPO) is when a company lists its shares on the stock market for the first time. It’s sometimes called ‘going public’.

Issuances

Issuance is the process of providing new shares of the Trust to the market. Typically, this is done when an investment trust is trading at a premium and expands the capital available to the company.

Market Cap

The total value of a publicly traded company's outstanding shares of stock. It is calculated by multiplying the current market price of a single share of the company's stock by the total number of shares.

NASDAQ

National Association of Securities Dealers Automated Quotations. An American stock market that handles electronic securities trading around the world

NAV cum fair

The value of all of a trust's assets with the latest income included but with debt subtracted at the fair or current value.

Net Asset Value

Net asset value (NAV) is a term used to describe the underlying value of a company minus any liabilities (debt). This term is common with investment trusts. If an investment trust is trading below its NAV, it’s said to be trading at a discount. If the opposite is true, the investment trust is trading at a premium.

Net debt to equity

This ratio measures a company’s financial leverage to indicate what proportion of equity and debt the company has been using to finance its assets and its reliance on debt. It is calculated by dividing its net liabilities by shareholders' equity. If negative, it means that cash on hand exceeds debt.

Premium discount of share price to NAV

When the market (share) price of an exchange traded security (for example an Investment Trust) is trading above its net asset value (NAV).

Potential gearing

It is the maximum amount of borrowing that an investment trust can undertake, expressed as a percentage of its net asset value It represents the total amount of debt that a trust can take on to invest in additional assets.

Price of expected transaction

In instances where companies in the portfolio are looking to raise additional capital in an arm's-length transaction where there is a signed term sheet in place but this is yet to close, the valuation will be updated to reflect the terms of this but with a discount applied to account for the execution risk associated with the investment as well as any potential last-minute movements in price. Until said transaction closes, the expected transaction price forms the basis for valuation.

Price-to-earnings ratio

The ratio tells you how much investors are willing to pay for the earnings a company has delivered. This ratio is used for expressing the relative value of companies in relation to their earnings.

Price to sales ratio

The ratio tells you how much investors are willing to pay for the sales a company has delivered. Sales are backwards-looking and are less subject to accountancy discrepancies than other metrics. This ratio is used for expressing the relative value of companies in relation to their sales.

Private company

A company that is under private ownership. It is not listed on an exchange and shares are unavailable to the public.

Public company

A company whose shares are traded, listed on an exchange and subject to the rules of an exchange and its regulator.

Revenue growth

Revenue growth refers to the increase in a company's total revenue or income over a specific period, typically calculated quarterly or annually, but it can also be calculated monthly or weekly basis

Share price

What it would cost to buy one share in a company. The price of a share price is unfixed and can fluctuate according to market conditions. It can increase when a company is seen to perform well, or fall, if perceived as performing less than expected.

SPAC

Special purpose acquisition company (SPAC) is a publicly traded company created for the purpose of acquiring or merging with an existing company.

Sum of the parts

Where companies in the portfolio operate like holding companies, making their own respective investments, we value its underlying portfolio utilising the methodologies noted above to determine the total valuation of the holding company.

Trading multiple

This valuation methodology sees each of the private investments being valued with reference to the trading multiples of its respective public peer-set. For this methodology to apply, the portfolio company must be making sustainable, recurring revenue or profits. In most cases where this approach is undertaken within the portfolio the multiple is driven by the last twelve months of reporting, but this can also take the form of a forward-looking multiple. The latter would be appropriate if any of the portfolio companies has made a meaningful acquisition that's likely to result in the significant change in performance.