D9, and a new NFT fund
I suppose it was inevitable but today brings news that we are about to have our first non-fungible tokens (NFTs) investment fund on the UK market (or any market to my knowledge).This will prompt much eye-rolling but let’s be honest about this.When it comes to the crazy world of crypto, there’s plenty that is completely illogical but that doesn’t mean it hasn’t gone ballistic in terms of the share price.By way of prime exhibit have a look at the share price of KR1 – where I own shares – which has gone up 12 fold since I bought into it a few months ago.
As Bitcoin prices pulled back in the last few weeks, Kr1’s share price slipped aggressively but it’s been rising again.I have no doubt that its portfolio of tokens and blockchain businesses is terrifically interesting but I’m not quite sure this quite explains the share price move.The sordid truth is that there’s a lot of money chasing too few investment opportunities and thus NFTs fit the bill nicely, in a momentum-driven way.So, yes be utterly cynical but also be realistic.
Anyway, back to NFTs.
These only just came on to my radar a while ago and since researching, I have to admit I’m frankly none the wiser.I have long been tracking what one investor once said to me were emotional assets – basically collectibles ranging from art to stamps.Tokens, built around blockchains and presumably funded via ether, are just a clever, technological way, of securitising these assets and making them easily tradeable.But with NFT art there’s a twist.
The actual art itself is digital, though unique (ish).
Here is a decent summary from the fund I mentioned at the beginning.
“ An NFT is a special, one-of-a-kind crypto asset that enables collectors to authenticate, own and trade original authenticated versions of unique digital goods on the blockchain.NFTs open an entire world of digital collecting and democratize the process by allowing the creators of digital tokens, typically an artist, digital creator or celebrity, to receive a crypto payment each time their work is traded.As well as being scarce and unique, NFTs provide a transparent chain of custody between the creator and the holder of the token adding a level of protection to collectible assets .”
Just Google this stuff and you’ll find that Bloomberg amongst others has done a fair bit of excellent reportage on this space.
The volume of NFT trade amounts to date is over $500 million, with $240 million taking place in March 2021 alone.Recent milestones include Beeple’s digital artwork Everydays: The First 5000 Days’ $69.3 million sale at Christie’s this month.
Personally, I think the buyers of this stuff are certifiably insane but if you have a lot of crypto cash to spend/get rid of in a hurry, then why not? Though in truth I can think of better ways of spending the money.Heyho.
Back to the fund which is called NFT Investments Plc and will be quoted (like KR1) on AQSE Growth Market.
According to the ITF document “ The Company plans to raise approximately £10m before expenses by way of a placing of 200 million ordinary shares at 5p each through First Sentinel Corporate Finance, the Company’s corporate adviser, and joint brokers Novum Securities and Tennyson Securities.First dealings in the shares are expected to commence later this month .”
The Company has been established by the founders of the LSE listed Argo Blockchain, the $1 billion market cap cryptocurrency miner.Again, its worth dwelling on that.
Argo – where I also own some shares – has done remarkably well in share price terms and the team behind the proposed fund seem well connected: “ Mack Flavelle, the co-founder of Crypto Kitties, considered by many to be the original NFT, is on the NFT Investments Advisory Board.Mack Flavelle is also the co-founder of Dapper Labs, a $2.6 billion company at the forefront of officially licensed NFT digital collectibles for the NBA (National Basketball Association) that yesterday concluded a $305 million financing round led by some of the biggest names in Hollywood, sports and investing .”
The flotation is expected to value NFT Investments at approximately £25m!
Obviously, I can write down a long list of reasons why you should NOT invest in this, but if you are interested in this space and have some fun money to lose (or maybe make a profit on, who the heck knows), I have a hunch this could do well.Remember: Lots of cash looking to invest in crypto, tokens, and NFT + no existing, moderately liquid vehicle = possible supply/demand mismatch and crazy share price.At some point, this whole craze will calm down but I’m not sure that will happen any time soon.
Back in the world of hardnosed, real-world investing nice to see that Digital 9 Infrastructure got away with a £300m raise, with the share price already at a small premium.
For the record, as with Cordiant, I invested.
The fund is off to the races with the acquisition of Aqua Comms for c.£160m.It seems like 33 million shares have been issued to Aqua Ventures Limited and Black Forest Funding at 100p per share.Just to remind readers, Aqua Comms is a platform owning and operating c.14,300km of trans-Atlantic sub-sea fibre systems.
The assets are fully operational and have a customer base that includes the likes of the FAANG stocks and other global content providers.Following the acquisition, the manager expects that the first year 6p dividend will be more than 100% cash covered, with the first dividend of 1.5p to be paid in respect of Q2 2021.
Here’s a useful view from fund analysts at Liberum :
“ Aqua Comms is one of the largest independent subsea fibre network operators, with global services and a core network position in the North Atlantic.The business owns and operates five separate fibre systems across the Atlantic Ocean, North and Irish Seas.It has also signed a contract with a third party, and is well advanced with another party in relation to two further systems currently in development, which are expected to be ready for service within the next few years and will further expand its network.
The c.£160m investment represents c.53% of DG9’s net IPO proceeds.Aqua’s reported revenues and EBITDA in 2020 were $30.2m and $18.6m, respectively.Based on these figures, the agreed enterprise value represents c.11.6x historic EBITDA.EBITDA grew c.13% in 2020 and has increased almost five-fold since 2017.
Revenues are diversified across c.50 customers, including content providers (c.50% of revenue), telecoms companies (44% of revenue) and industrials (6% of revenue).Global international bandwidth demand has grown at a CAGR of 51% between 2002 and 2019 and is expected to continue growing at CAGR of c.40% from 2020 to 2026.Significant investment in subsea cables is required to meet this growing demand, which should provide plenty of opportunities for businesses like Aqua Comms .”.
