September 2023 Monthly

The May 2023 factsheet gave key information, including the NAV (462.4p per share), NAV return (2.4%), net cash generation (£67.7m), distributions (£222.5m), calls (£154.8m), period-end cash (£63m) and commitments (£857m, including £441m new commitments). The FY’23 results announcement noted a change in capital allocation, with up to £200m being allocated to buybacks in FY’24, and future policy is under review. Additionally, it showed i) uplifts on exits of 27%, ii) exits at an average 3x multiple to cost, iii) 52% of the portfolio invested directly in companies, iv) five-year average revenue and EBITDA growth of 18% and 20%, respectively (benchmark 7% and 6%), and v) an EV/EBITDA multiple of 17.8x.

• Capital allocation: The discount to NAV has generally ranged between 40% and 50% over the past year. At this level, the return from buybacks compared with new investments is very attractive. PIN modelled and stress-tested its balance sheet before deciding to commit up to £200m in buybacks in FY’24, without constraining new investment. More details on future policy will be announced in due course.
• July factsheet: July saw a 0.5% NAV per share fall (valuation gains 0.5%, offset by forex -0.9%), a small net cash outflow (£7.1m), £526m of available finance and 3.8x financing cover. Outstanding commitments fell to £806m (from £826m). The five-year NAV return is 12.9% annualised (MSCI World benchmark 10.1%).
• Valuation: PIN shares trade at a 39% discount to NAV, despite their long-term outperformance. We believe the “real” NAV is likely to be above the book value, given the consistent and material uplifts to carrying value achieved on exits. Steady buybacks have been made. PIN is run for capital growth.
• Risks: We note i) sentiment to the economic cycle (NAV rose every year in the 1990s’ recession and in FY’20), ii) adverse sentiment to illiquid and unquoted investments (PIN has permanent capital and proven exit uplifts), and iii) that sentiment to the sustained discount could be an issue. Short term, there can be FX volatility.
• Investment summary: PIN is in an attractive market, and can pick the best part of that market. Its manager and deal selection, and portfolio structuring, add value. The latest factsheet reports 11.9% annualised NAV growth since inception in 1987. Corporate governance is strong, and the NAV is conservatively valued. There are risks around the cycle, and illiquid and unquoted underlying assets. The results, the buyback programme and multiple and large-scale director buying, have seen the shares outperform those of peers since the results, but the discount to NAV appears anomalous with risk-adjusted returns, including global diversity.