Shares of Seraphim Space Investment Trust (LSE: SSIT) popped 11.8% on 14 March, finishing the day at 61p. This brought the gains for this former penny stock to 135% since it bottomed out at 26p in July 2023.
Seraphim is an investment trust with a £146m market cap that focuses on early and growth-stage private businesses involved in space technology. It therefore offers investors exposure to the booming space industry.
But should I invest in it? Let’s explore.
Good progress
Seraphim has about 22 holdings spread across areas like satellite communications, Earth observatory technology and space-related data analytics. As most of these are small private companies, they aren’t well-known.
Top 5 holdings (December 2024)
| Company | Sub-sector | % of portfolio |
|---|---|---|
| ICEYE | Earth observation | 21.9% |
| D-Orbit | In-orbit services | 13.5% |
| ALL.SPACE | Ground terminals | 11.9% |
| HawkEye 360 | Earth observation | 9.2% |
| LeoLabs | Space traffic monitoring | 5.5% |
The share price jump last week came after the trust’s results for the six months to 31 December. The fair value of the portfolio grew 7.3% to £216.3m, helping drive the net asset value (NAV) by 5.1% to £239.7m.
This was mainly due to an increase in the fair value of ICEYE and a new funding round for Skylo, which raised $158m. In the period, the trust invested £5.1m into four existing positions.
Half of the portfolio representing 71% of fair value had over 12 months of cash left. And one holding called Voyager Technologies is planning a US IPO, which could boost the trust’s valuation.
Meanwhile, holding Skylo has partnered with telecoms giant Verizon to launch satellite-based mobile messaging in the US.
Seraphim finished the year with £23.6m in cash and £14.1m in potential liquidity through some listed holdings. So it has capital to make further investments.
Space trends
Will Whitehorn, Chair of the trust, highlighted two big space trends that are playing out. The first is the US administration’s push for innovative solutions for “manned missions to Mars and greater efficiency in defence spending“.
At the same time, Europe is bolstering its own defence capabilities. Whitehorn commented: “The prospect of Europe potentially no longer being able to rely on the US’s intelligence and communications capabilities for its security plays directly to the pressing need for Europe to develop more sovereign space capabilities as quickly as possible.”
As a result, its three largest holdings should benefit. The trust says they’re European companies with “world-leading capabilities” that are already being procured by departments of defence in both Europe and the US.
Wide discount
Now, some portfolio companies only have a few months of funding left. This means follow-on funding rounds will be necessary, increasing bankruptcy risks if access to capital evaporates.
Also, the global space market is very competitive, with established names as well as many upstarts. So there’s no guarantee the trust’s holdings will succeed, even if the overall space economy expands.
Currently at 61p, the shares are trading at a massive 40% discount to the underlying NAV per share (101p). While this gap could indicate a bargain, it also highlights how investors are potentially cautious of the prospects here.
Risky play
Morgan Stanley estimates that the global space industry could surge to over $1trn by 2040, up from $350bn 2020. So this is an area I’d like to invest in.
However, I think this space trust is a little too speculative for me. I’d prefer to see more evidence of commercial progress at the top holdings before I consider investing.
This post was originally published on Motley Fool
