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Seraphim Space boldly goes where no investment trust has gone before

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Seraphim Space Investment Trust, [LON:SSIT], the world’s first listed Space Tech fund published its full year results to 30th June 2022 this week (17th October).

The investment trust has net assets as at 30th June of GBP239.9m and has a portfolio of 26 companies, 19 of which were acquired from the company’s Seraphim Space LP incubator fund. It has seen positive growth in NAV per share since IPO and was up 1.9% to 99.97p at the end of June’s financial year.

The investment trust states in its marketing literature: “We are Your Mission Control! Across the Seraphim Space investment funds, Seraphim Space Accelerator and Seraphim Space Investment Platform we are the first organisation to support space entrepreneurship from inception to exit. We are the industry leaders. Wherever you are in your journey we provide the capital, expertise, and global partners to realise the boldest visions.”

As they are the only player in this area in the investment trusts market, Seraphim is undoubtedly the market leader. However, breaking through the von Kármán line as an investment trust has not all been plain sailing, with NAV per share for three months to 30th June 2022 down 4.1%. The company said that this was principally attributable to the listed portfolio and the reduction in listed comparables, where used for the valuation of private portfolio companies.

No one can hear you scream

Moreover, the valuation of Seraphim’s listed portfolio – representing 7.8% of NAV – has over the calendar year been materially impacted by weakening equity market performance and broader sector rotation away from high-growth and technology companies. The underperformance of the listed portfolio was offset by improving valuations of the unlisted portfolio.

In the period Seraphim reported strong levels of investment activity with seven new investments and nine follow-on transactions closed during the period with aggregate cost of GBP87.1m, with the 26 companies valued at GBP186.1m, being 104.3% of cost.

The space industry – forgive the pun – is one set to take off in the next decade and is traditionally defined as economic activities that occur outside of the earth’s atmosphere. Space affects all of us in the UK as satellites primarily deliver the broadcasting services we entertain ourselves with; track our weather patterns (a good chat about the weather is as staple a part of British culture as tea and biscuits); manage our communications and help us get to where we are going through GPS mapping. But satellites are also used commercially such as in climate control monitoring and geophysical analysis.

The three elements of the space industry have traditionally been satellite manufacturing, support ground equipment manufacturing, and the launch industry. With the likes of privately funded firms like Space X and Virgin Galactic, space tourism now joins that list. Given the War in Ukraine, and the West being cut off from access to technology from Russia’s Soyuz launch vehicle family and infrastructure, a boom in contracting out the launch job to private corporations could be set to take off.

Given the vast amounts of money involved in space exploration and space exploitation, and the general altruistic objectives of exploration – embodied by NASA’s motto: “Exploring the secrets of the universe for the benefit of all…” the space industry has been predominantly dominated by sovereign and parastatal organisations, but since the turn of the century with the cost of technology coming  down and the applications for space domiciled technology increasing, private sector operators have become more important.

Galactic Offshoring

In fact, many government agencies are contracting out many R&D and operational functions to the private sector – for example SpaceX needed around USD1bn in investment to get to the point that it had a working prototype launch system and half of that money came from the US Government, which was good news for shareholders. In all between the years 2000 and 2018 private companies received about USD7.2bn in investment capital from the US Government alone, according to research by Space Angels, an investment firm focused on the space industry. This was on top of the USD8bn of investment from private investors and venture capital in 2020 alone – 70% up on 2019, despite the impact of Coronavirus. It is this area that Seraphim has cast its lure.

One of Seraphim’s portfolio companies is Xona Space Systems, which is developing a new generation of high-accuracy position, navigation, and timing solutions for intelligent systems, delivered via a secure, high-power signal from low Earth orbit. The company’s Pulsar product has applications in logistics and automobiles, agriculture, power and infrastructure and marine transportation. Whereas another portfolio company, Chai, uses Artificial Intelligence to monitor and manage global commodities pricing.

Seraphim Space Investment Trust is the first mover

Seraphim Space Investment Trust targets early and growth stage Space Tech companies that have the potential to dominate globally and that are sector leaders with first mover advantages in areas such as climate, communications, mobility and cyber security. Mark Boggett, Seraphim Space Investment Trust’s chief executive said: “The space sector has multi-decade growth potential and [its valuation is] forecast to rise from USD60bn to two to three trillion by 2035. There are more than 200 companies planning to launch more than 100,000 satellites in the next decade and this will build a digital infrastructure around our planet.”

Seraphim launched as a space tech fund in 2016 focussing exclusively on space technology and Boggett said quickly became the “go-to VC for space tech entrepreneurs around the world.”

He continued: “Space is long-term growth market and through the investment trust we are looking to achieve over 20% per annum. Historically our returns have been over 30% per annum which we’ve achieved over the last four-and-a-half years.”

A constellation of satellites

Boggett added: “[…] space is not about rockets; space is not about satellites; space is actually a platform that is going to catalyse a range of mega-trends that are going to change our world. Population growth, urbanisation, climate change are all big problems that our planet has to address and we believe a digital platform in the sky (made up of a constellation of hundreds if not thousands of low-cost launch and low-cost miniaturised satellites) is going to be an enabler to allow us to monitor and use our resources more efficiently.”

The fund has patiently built up a portfolio of companies, some of which have gone on become some of the market leaders in their sectors, such as Spire Global, focused on weather. Boggett says the strategy of the fund is to build long-term capital growth through building a diversified portfolio of Space Tech businesses globally, investing in those companies that have to potential to become global leaders in their fields. Boggett said all of the companies they have invested in are ones with billion dollar potential.

Space – the final frontier – is a difficult market to predict with extremely high barriers to entry and huge risks, where should something go wrong, it could be catastrophic for the business. That said, Seraphim Space Investment Trust finds itself in rarefied company – the top 1% of the top 5 percent-ers – Elon Musk, Jeff Bezos, Richard Branson, who are all putting considerable amounts of their own wealth into their own private space tech businesses, as they see the sector as multi-decade growth opportunity. However, because of the frontier nature of the industry, telling good from bad – given there is not much to compare it to, and the investment is about 100km above your head –  is reminiscent of Silicon Valley tech entrepreneurs selling ‘sticky eyeballs’ to bemused middle-age, old school life insurance fund managers in the run up to the Millennium when that last frontier – the Internet – was being approached. Most of those investments went up in smoke; anyone remember Pets[dot]com or Boo[dot]com?

However, the opportunities of space are endless, and if that’s your flavour, a diversified portfolio of space technology companies in a vehicle overseen by the FCA might be a good way to dip one’s toes in the water.

You may be interested in this podcast: Investing in the new space race

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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