April 2021 Monthly

The key message from our report, Just look at PIP’s underlying company resilience, published on 10 March 2021, was the spectacular operational outperformance of PIP’s investee companies. PIP's sample covering two thirds of the portfolio, reported weighted average revenue and EBITDA growth of 17% and 15% (MSCI World Index falls of 17% and 31%, respectively). PIP’s investee companies normally outperform (EBITDA growth 2013-19 average 11% higher than the index); however, through COVID-19 to November, it was 4x the usual level. EV/EBITDA ratings on PIP’s book are, despite this sharp outperformance, at a 1% discount to this index.

• End-Feb’21 performance report: In February, valuation gains added 116.8p and investment income 0.3p. The forex impact was -53.0p, and expenses/taxes were -3.9p. PE assets were £1,632m, available resources were £121m, $270m and €102m, and undrawn commitments were £435m. The five-year TSR is 103%.
• Cash generation: Unlike some of its peers, PIP continued to generate significant cash in 9MFY’21 (£90m). In 1H, it saw realisations at 80% of recent levels, despite the uncertainty. It continued to invest steadily and calls were ca.17% above recent levels, and many calls were to fund roll-up strategies – a positive feature.
• Valuation: PIP shares trade at a 17% discount to NAV, despite their long-term outperformance. We believe the “real” NAV is likely to be above the book value on the accounting date, as the company consistently reports uplifts on realisation. PIP re-invests returns for superior capital growth and pays no dividend.
• 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 (PIP has permanent capital and proven exit uplifts), and iii) sentiment to the sustained discount could be an issue. Short term, there can be FX volatility.
• Investment summary: PIP is in an attractive market, can pick the best part of that market, and has competitive operational advantages. Its manager selection and portfolio structuring have added value. This has delivered 11.6% annual NAV growth since inception. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets, but these, against the historical returns, make the current discount to NAV an anomaly.