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Hardman & Co Investor Forum | November 2024

In our note, Portfolio: 14% EBITDA growth + widening margins, we noted the key message from ICGT’s 1HFY’25 results was continued strength of the operating companies, which delivered an average 14% LTM EBITDA growth. Margins have widened by ca.5%, allaying some concerns over the impact of the higher-rate environment. New investment is accelerating, and realisation activity continued with an average 26% uplift to carrying values on exit. The five- and 10-year total annualised NAV per share returns (12.5% and 13.2%, respectively) are a good reflection of what investors are getting from ICGT’s defensive growth strategy. ICGT has a balanced capital return policy.

  • 1H numbers: ICGT’’s constant currency portfolio return was 3.8% (£: 2.6%). The NAV per share total return 2.8%. A narrowing discount saw a share price return of 10.3%. New investments were £104m (the third consecutive six-month period increase), new fund commitments £72m, and proceeds received £86m.
  • Capital allocation: Shareholders saw 1H dividends of 17p (prior year 1H: 16p) and a reiterated intention to pay 35p (+6%) in the whole year. Buybacks of £21m (average discount 37.8%) were executed for both the long-term (£11m) and the opportunistic (£10m) programmes. These added 19p to the NAV p/sh..
  • Valuation: ICGT’s NAV valuations are conservative (realisation uplifts). The ratings are undemanding, and the ongoing carry value against cost is modest. The 37% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and is above the levels seen pre COVID-19. The 2024E yield is 2.7%.
  • Risks: PE’s post-expense returns are consistently market-beating, but this is an above-average cost model. Even though actual experience has been of continued NAV outperformance in economic downturns, sentiment is likely to be adverse. We believe ICGT’s permanent capital structure is right for unquoted and illiquid assets.
  • Investment summary: ICGT has consistently generated superior returns, by adding value in an attractive market, having a strategic focus on defensive growth and exploiting ICG synergies. Valuations appear conservative, and governance is strong. ICGT focuses on delivering resilient, risk-adjusted returns. The risks are primarily sentiment-driven on costs and cyclicality, and on the underlying assets’ liquidity. It seems anomalous to have a consistent record of outperformance and to trade at a 37% discount to NAV.

 

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