‘Rare’ opportunity to invest in VC stock set for 130% upside: Analysts
Shares of Molten Ventures are expected to soar by 130% over the next 12 months, according to one investment bank. The London-listed stock of the tech venture capitalist company is a “rare” and “attractive” investment opportunity thanks to several factors, according to Berenberg’s analysts. First, Molten’s shares fell by 65% last year in tandem with its peers in the Goldman Sachs non-profitable technology index. However, the stock has remained flat this year despite a 20% recovery among its rivals. “In our view, this does not make sense,” said the investment bank’s analysts, led by Benjamin May, in a note to clients on Feb. 22. “With data showing a more resilient venture-capital (VC) deal backdrop, and growth becoming increasingly sparse … we believe Molten’s high-growth investment proposition is becoming increasingly rare and therefore attractive.” GROW-GB 1Y line Molten’s shares were trading at £3.7 ($4.5) on Tuesday afternoon. The analysts said the stock also appears undervalued as a result of “fear-mongering” about the state of the VC sector. The latest report from PitchBook, a private valuation data provider, said investments in mature startups fell in the second half of 2022. “Valuations, deal values, and step-ups, particularly at mature financing stages, cooled and fell from the peaks of the past two years,” the PitchBook report said. “Early signs of lower valuations surfaced in [the second half of] 2022, and with top deciles and quartiles dropping, it appears depressed valuations have filtered into the VC ecosystem amid wider public market struggles.” However, Molten, which primarily funds early-stage companies, reported that while the macro environment had soured over the past year for late-stage companies looking for large funding rounds, deal-making in the mid and seed-stage VC sector remained stable. PitchBook’s report also confirmed the trend. “Angel and seed valuations remained strong in 2022 despite the top decile fluctuating across quarters,” the report said. In addition, Molten also said sales at portfolio companies grew on average by 60% last year and are expected to grow by 70% in 2023. Berenberg’s own stress-testing of Molten Ventures’ portfolio companies also revealed that while they trade at 5.6 times enterprise value-to-sales, Molten itself was trading at a discount. On top of that, FactSet data shows that Molten is trading 6.8 times the profit-to-earnings metric for the next 12 months — less than its peer P10 , which trades at 11.6x. “To us, this indicates that the shares are currently undervalued. It also suggests that any further downside should be limited. We reiterate our Buy recommendation and our 900p price target,” the analysts added. Berenberg isn’t alone in its bullish view of Molten. Even the most conservative analysts covering the stock, James Lockyer from Peel Hunt and Gerry Hennigan from Goodbody, have a price target pointing toward a 90% upside. The average price target of four analysts compiled by FactSet shows an upside of 103.8% as of Feb. 22.