Tech and healthcare exposure boosts performance for Standard Life Private Equity – Standard Life Private Equity (SLPE) has released its half-year report for the six months to 31 March 2021, during which time the trust’s NAV total return was 14.9% and the total share price return was 38.8%. This compares with a return of 18.5% from ASEI’s benchmark, the FTSE All Share. Meanwhile the discount narrowed from 36.1% as at 30 September 2020 to 23.1% by the end of March.
During the period under review the portfolio continued to generate realisations, following on from the trend seen in the previous year, with distributions of £92.7m. Additionally, the valuation of the underlying portfolio increased by 22.9% while net assets also increased to £873.9m, from £770.3m, as SLPE’s strategic exposure to resilient sectors – such as technology and healthcare – helped to underpin portfolio growth despite the global pandemic.
Statement from the manager:
The first six months of the year have seen the Company continue its strong performance is the wake of Covid-19. The Company’s strategic exposure to more resilient sectors, namely Technology, Healthcare and Consumer Staples, positioned the Company well going into the global pandemic. This has been reflected in robust trading in the underlying portfolio and strong realisation activity, despite the economic backdrop, helping to underpin strong overall valuations in the portfolio.
The underlying portfolio continues to see several success stories, both within resilient sectors such as Technology and Healthcare and more cyclical sectors such as Industrials and Consumer Discretionary. Therefore, when we look at the Company’s largest 100 companies in the portfolio by value, we estimate that only 2 (0.8% of NAV) have been materially disrupted by the global pandemic, with the remaining underlying companies still expected to reach their respective investment cases, albeit with timing delays in some cases. The portfolio is well positioned as we hopefully move out of this period of country-wide lockdowns.
Furthermore, a number of full exits and IPOs have also helped to drive meaningful uplifts in valuation during the six months to 31 March 2021. Notable exits include Colisee (Nordic-based care services), Questel (provider of IP information and management software) and Calypso (capital market software), whereas IPOs in the portfolio include Moonpig (UK-based online gifting business), Dr Martens (leading consumer footwear brand) and Inpost (self-service lockers for ecommerce consumers). Portfolio company realisations during the first six months of the year were at a 63.1% premium to the valuation two quarters prior. This type of uplift upon exit is not a recent phenomenon, with the portfolio displaying an average exit valuation premium of >20% since 2010.
On the new investment side, we have seen a number of interesting new underlying companies in the portfolio, mostly in more resilient, high growth sectors. The Company completed three new co-investments, in NAMSA (Contract Research Organisation focused on medical devices), Funecap (European funeral services) and a technology business sponsored by Nordic Capital which, due to confidentiality reasons we are unable to name at this time. The Company also committed to three new primary funds during the period, all alongside managers with whom Aberdeen Standard Investments has an established relationship of more than ten years (Triton, IK, and PAI). Further detail on the new investments is provided later in the report.
In terms of cashflows, the aforementioned exit and IPO activity has helped drive strong distributions in the period. Distributions received for the six months to 31 March 2021 were £92.7m. This strong exit activity is continuing the trend seen in the prior financial year, when the £140.7m of distributions received in the year to 30 September 2020 was the second highest annual total for SLPET since its inception in 2001. As a result, the balance sheet is in a robust position with £62.5m of cash and cash equivalents and an undrawn £200m revolving credit facility. This provides the Company with ample firepower for new investments in the months and years ahead.
Outlook
The Company has performed strongly during the global pandemic and we believe the portfolio is well positioned as economies re-open following covid-related restrictions. The portfolio benefits from an attractive mix of companies in cyclical and non-cyclical sectors (roughly 50:50) and has no reliance on a single country. Based on our engagement with investees, we believe that SLPET has relatively few underlying companies that are currently experiencing financial difficulties as a result of Covid-19. Therefore, we take comfort that the portfolio’s diversification should position the Company well as we move forward.
The Company’s balance sheet is robust and, with the investment pipeline further building for the second half of the year, we feel that SLPET is well positioned to take advantage of opportunities across the remainder of 2021 and beyond. The Company’s focus will continue to be predominately on Europe, with a core focus on mid-market buyouts and preference for non-cyclical sectors. Primary funds remain the bedrock of the portfolio although we expect to see co-investments continue to grow as a proportion of the Company’s NAV and in line with our investment strategy.
We continue to have high conviction that the private equity model of active ownership thrives on the opportunities that present themselves during periods of market dislocation and economic headwinds. Whilst the global pandemic has not had the significant negative financial impact we initially expected, we continue to hold a degree of caution as we look ahead. Pricing in attractive sub-sectors such as cloud-based software or medical technology is at record highs and there are a number of broad risks looming in the background that have the potential to have a widespread impact on the portfolio, not least the threat of inflation and rising interest rates. As such, we remain committed to deploy capital with discipline in the months and years ahead.
SLPE : Tech and healthcare exposure boosts performance for Standard Life Private Equity