Fund Focus: what next for Seraphim space trust?

The term “diamond hands” is appropriate enough for the world of crypto and meme stocks, where investors seemingly need nerves of steel to withstand bouts of extreme volatility. 

But a similar disposition might also work well for anyone invested in Seraphim Space Investment Trust Ord (LSE:SSIT). 

Long-term backers of the stock are more familiar with intense price movements, given that shares in the trust went into a something of a tailspin in late 2021 before ultimately enjoying a sensational recovery some years later.  

The trust is one of the big success stories of recent years – but big volatility could always lurk around the corner, as we have seen in recent months. 

Those investors who bought into the trust’s £137 million C share issuance in spring certainly need some patience, for now. 

Having traded at £1 a pop on issuance the shares have slumped hard, and are trading at less than 79p at the time of writing.  

The C shares (with the SSIC ticker) trade at almost a 20% discount to net asset value (NAV) according to AIC figures, though such metrics can come with plenty of nuance and confusion in a share class dedicated to new investment. 

The trust’s main shares (SSIT), by contrast, trade at around 204.5p and on a roughly 15% premium to NAV, though they are also down from the levels of May when the C share results were announced.  

Such price action could relate to sentiment cooling a little after the Space Exploration Technologies Corp Class A (NASDAQ:SPCX) IPO in June, as well as a sell-off for growth shares later in the summer. 

Seraphim’s two share classes offer two very differently valued ways into the fund – and it’s worth examining some key developments before eyeing either one up. 

What’s happened? 

The C shares are cheaper than the main share class, but in theory carry greater risk if the cash is used for new investments.  

They will be waiting for the portfolio to reach greater maturity – and cash might have to be invested at higher valuations, now the space tech theme has more momentum. 

So we at least have seen some progress in the C share class so far, with lots of cash deployed into existing portfolio companies.  

Just today (Monday 12 October) Seraphim announced it had invested an additional $23.1 million (£17.5 million) into an existing holding, Skylo Technologies, using proceeds from the C share issuance. 

That adds to the $15 million it announced it had deployed into another existing holding, Xona Space Systems, on Friday (9 October), as well as to the follow-on investments of £18.6 million in Pixxel, £2.7 million in Zeno Power and £22.2 million in Hubble, all unveiled in August. 

As such the trust has deployed around £70 million, or a little over half, of the C share cash.  

Importantly, as research provider QuotedData notes, its capital commitments have exceeded a £40 million threshold required for some of those C shares to convert into ordinary shares.  

That would give some of the C share investors access to the broader portfolio and introduce some of the newer waves of investment into the ordinary share class – and it’s worth noting that conversions are based on the end of September NAV (yet to be published), and should take place in November. 

However some concerns are worth bearing in mind. 

Too far, too fast? 

As QuotedData’s Matthew Read puts it in a recent note, a breach of that £40 million threshold in the space of a few months means “investor concern has shifted from whether the money would be deployed quickly enough to whether it might now be deployed too quickly”.  

He does note that Seraphim has long boasted a good pipeline of potential future investments, and if the trust does get through its C share war chest quickly than it could issue more.  

The trust initially said it would seek up to £350 million, and it’s important to remember that it can raise up to that amount via more than one round of issuance. We could potentially expect another bite of the cherry. 

As I noted earlier there’s also the nagging concern that valuations could be frothier in the wake of the SpaceX IPO – though it might, frankly, be hard to avoid such a problem. 

Watch the portfolio 

C share investors might be keenly watching out for the end of September NAV. 

But there are other reasons to do so, beyond knowing the valuation they might get in any share class conversion. 

Portfolios of private companies are hard to monitor because their NAV updates are not the most frequent, and because valuations can change significantly, especially if a company conducts a funding round or even IPOs.  

We saw SpaceX enjoy multiple upward valuations ahead of its IPO, whereas back in 2022 Klarna Group (NYSE:KLAR), when still a private company, suffered a painful haircut to its valuation thanks to a funding round. 

With its sector in vogue, Seraphim sees plenty a funding round among its portfolio companies, among other things.  

Importantly in September we saw a chunky upward valuation for its main holding, ICEYE, as part of a funding round. 

That equated to a 102% increase in fair value and an increase in NAV of 73p per share. 

ICEYE has long been a dominant part of the Seraphim portfolio, representing almost half its assets at the end of March. 

With the recent uplift it will be worth checking how much of the portfolio it accounts for, and how much stock-specific risk the team takes. 

One advantage of the C share issuance is it does give the trust more firepower to make follow-on investments to existing companies. 

Some investors might hope that, if and when other companies enjoy as much success as ICEYE, it helps the portfolio to broaden out somewhat.