The ASX tech share Bailador Technology Investments Ltd (ASX: BTI) is one of the next investments that I want to buy.
It's already in my portfolio, but I think the current 52-week low makes this one too good to miss out on.
For investors that haven't heard of this one, it describes itself as a growth capital fund focused on the IT sector, with it being "actively managed" by an experienced team with "demonstrated sector expertise."
Bailador says that it provides exposure to a portfolio of IT companies with global addressable markets. It invests in private tech businesses at the "expansion stage".
There are three reasons why I think the business is attractive at the current level.
Valuation
I like being able to buy a business at a discounted price – whether that's after a share price fall or a clear gap between the underlying value of the business and the current share price.
At the end of last week, the Bailador share price dropped to $1.17. With its latest monthly update for February 2023, the business had a $1.61 pre-tax net tangible assets (NTA) value. That means the share price discount is currently 27.3% to the NTA.
That's a huge discount considering over a third of the value is cash and approximately another third is the listed investments of Siteminder Ltd (ASX: SDR) and Straker Translations Ltd (ASX: STG).
While higher interest rates and inflation have damaged the valuation of ASX tech shares, I think the future is generally promising for tech businesses, so I think the NTA will grow over time.
Compelling businesses and cash position
Bailador says that it typically invests $5 million to $20 million in businesses in the target tech businesses that are seeking growth stage investment.
The companies that it invests in typically have a few characteristics: run by the founders, a proven business model with attractive unit economics, international revenue generation, a "huge" market opportunity, and the ability to generate repeat revenue.
There are a number of 'verticals' that it looks to invest in within the tech sector, including software as a service (SaaS) and other subscription-based internet businesses, online marketplaces, software, e-commerce, high value data, online education, telecommunication applications and services.
In terms of Bailador's private tech investments, it's currently invested in five other names: InstantScripts, Access Telehealth, Rezdy, Nosto and Mosh. The two biggest positions are digital healthcare businesses InstantScripts and Access Telehealth, worth around $40 million of the portfolio.
The ASX tech share's investment team is on the lookout for other opportunities, which may be found during this uncertain economic period.
Dividend yield
Baildor has a dividend policy of paying 4% per annum of its pre-tax NTA. With the share price trading at a large discount to the NTA, the actual dividend yield that investors are getting is much higher than 4%.
A 4% yield on the NTA works out to be a 5.5% dividend yield on the Bailador share price, or 7.8% including franking credits.
If Bailador can combine a mixture of good dividends with valuation gains for its portfolio, then I believe it will be able to achieve pleasing shareholder returns. At the end of February 2023, the prior three years had produced an average shareholder return per annum of 12.7% for Bailador.
I'm not expecting this to make huge returns, but I think this low point could be a good entry price for 3-year, 5-year and longer investment timelines.
