Regular readers will know that I quite like the listed private equity funds space. To be fair, I have severe reservations about the ethics of some PE operators – especially their fees and use of leverage – but overall, I think there is real value to be had by investing in faster-growing private businesses through a listed fund of fund. A few years ago, valuations on the floor but prices have picked up nicely in the last year, with discounts narrowing substantially. I still prefer my favorite’s such as Hg Capital, but I think ICG Enterprise is also now looking increasingly like a core holding, not least because it’s manager ICG is one of the biggest players in the PE space and has access to excellent deal flow (and fund research). Results from yesterday morning certainly seem to vindicate this optimistic view with most analysts now rating the fund a buy. Highlights from the results included the following:
- NAV per share of 959p – total return of 12.5%1 in the year
- 16.4% constant currency return on the investment Portfolio; 15.3% return in sterling
- 12% average LTM earnings growth from Largest 30 Companies; 47% of the Portfolio
- £227m of realizations; cash proceeds 37% of the opening Portfolio value
- Realisations at 40% uplift to carrying value; 2.7x multiple to cost
- Dividends of 21p, a 5% increase on previous year and 2.6% yield on year-end share price and a move to quarterly dividend payments
- Cash balances at the year-end were £78m, or 12% of NAV, up from 6% at the beginning of the year.
- Outstanding commitments are £321m, covered 57% by cash (before the payment of the dividend), and the undrawn bank facility. Approximately £80m of commitments are expected to be called over the next year, conveniently almost matching the current cash figure.
Digging down into the portfolio Matt Hose from Jefferies observes that: “The portfolio valuation multiple was 10.6x, unchanged from the interim stage but up from 9.7x at the start of the year. Average LTM EBITDA growth was 12% meaning ICGT still has one of the most attractive portfolio valuation to growth profiles within the listed private equity sector. In terms of changes to the composition of the portfolio, we note the exposure to ICG managed investments increased from 10% to 18%, largely driven by co-investment activity (the bulk of which was nursing home operator DomusVi), while U.S. exposure also continues to increase (to 22%). The proportion of the portfolio in pre-crisis investments fell from 13% to 3% over the year – positive news as much lower exit uplifts are generally achieved on these holdings. As such, the current vintage profile of the portfolio now looks reasonably well-balanced”.
According to analysts from Numis:” ICGT’s share price delivered total returns of 20.1% in FY 2018. Since 31 January 2018, the share price is down 0.9% to 806p (at Friday’s close), allowing for the 5.0p dividend paid on 2 March. This represents a 15.5% discount to the latest NAV, which we believe offers considerable value.” I suspect that assessment is about right – a 15% discount and a 2.6% yield makes this an attractive share. My only worry is that new commitments might be at peak of the cycle valuations. Nevertheless, despite that reservation, I rate this PE fund as one of my core portfolio buys.
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