A weak dollar weighed on ICG Enterprise (ICGT) in the first half of its financial year but marketing efforts by the £949m private equity fund, combined with share buybacks and success in exiting investments during a sector downturn nonetheless produced a good result for shareholders.
The investment trust, which invests in private equity funds run by its manager Intermediate Capital Group and other groups, and also holds direct stakes in unquoted companies, delivered a total shareholder return of 12.6% in the six months to 31 July.
That return, which included £12m in dividends of 18p per share, was a positive outcome considering the portfolio saw just 2.1% growth. Even this was wiped out by the strength of the pound eroding the value of the dollar earnings of its companies, 41% of which are based in the US, to leave the return on net assets down 0.7%.
However, net debt halved to 5% after £222m of realisations surpassed £151m of sales made last year.
Around £60m of these came from the sale of eight fund investments at a 5.5% discount in April, although the other 13 exits were made at an average 14% uplift above their previous valuations.
After a bit of a rally this month, ICGT shares are up 30% over one year with a total 111% shareholder return over five years. That ranks the company fourth out of 15 closed-end funds in the AIC Private Equity sector, notwithstanding the wide discount, or gap, between the share price and the net asset value (NAV) of its £1.3bn portfolio managed by Oliver Gardey and Colm Walsh. At 31 July NAV per share was £20.40. The shares dipped 1.9%, or 28p, to £14.82.
Our view
Matthew Read, senior analyst at QuotedData, said: “ICG Enterprise Trust’s interims illustrate an ongoing theme that we are seeing in listed private equity funds – specifically, at an operational level, the underlying companies are generally performing well – 15% earnings growth over the last 12 months – but this continues to not be reflected in the value of the listed funds that hold them. It is worth remembering that, in local currency terms, ICGT has provided an annualised return of 17.4% over the last five years, yet is trading at a discount to NAV of 25% at the time of writing. This year, sterling strength has been an additional headwind.
“ICGT’s discount also seems incongruous with its recent record in realisation – £222m of proceeds in six months (already ahead of last year) including exits from three of its top-10 holdings and, while the secondary sale of a portion of its portfolio was completed at a 5.5% discount this helped tidy up the portfolio and the exit still achieved a 15% internal rate of return for the fund.
“There could also be more to come as secondaries, or stakes in private equity funds it bought from other investors, now account for 17% of the fund and could help increase the rate of realisations and therefore near-term cash return. Given this, we think there’s room for the board to ramp up share buybacks further, given that buying in cheap stock at these discount levels is strongly beneficial, adding 0.7% to net asset value in the first half and 3.3% to NAV over the last three years. That has still left room for a progressive dividend, up 6% increase over the prior year.
“These measures seem to be working with the discount narrowing from 35% to 27% during the period, but we think there’s room for the discount to narrow further if ICGT keeps delivering exits at or above book value and can find opportunities to redeploy those proceeds.”
