ICG Enterprise Trust

1HFY’24: defensive growth/disciplined approach

16 Oct 2023 / Corporate research

ICGT’s interim results to July 2023 confirmed the robust nature of its strategy and portfolio with LTM NAV per share total return of 4.1%. The 1HFY’24 portfolio return, on a constant currency basis, was 4.6% and the long-term, ongoing buyback programme enhanced NAV with an average discount on purchase of over 40%. The minimum of 32p expected dividend for FY’24 was reconfirmed. Realisations were £94m, new investments £64m and new commitments £110m; activity that is slower than the recent past but still ongoing. Exits were at an average 18% premium to carrying value, demonstrating the conservative approach to accounting. ICGT’s defensive growth is delivering in challenging markets.

  • ICGT’s investment approach: We detail below how ICGT’s defensive growth strategy works in practice and why this has delivered long-term EBITDA outperformance. Consistency in performance greatly enhances compounding effects. This has led to share price outperformance (five-year TSR 15.2% annualised).
  • Interest rate sensitivity: With below-PE average gearing (4.7x debt/EBITDA), over half the portfolio fixed rate debt (most not refinancing until 2026/later), and opportunities for bolt-on deals and passing on price increases, investee companies appear relatively well-positioned for a higher-rate environment.
  • Valuation: ICGT’s NAV valuations are conservative, demonstrated by continued realisations above reported book values. The ratings are undemanding. The 39% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and twice the levels seen pre-COVID-19. The 2024E yield is 2.8%.
  • Risks: PE is an above-average cost model, but post-expense returns have consistently beaten public markets. Actual experience has been of continued NAV outperformance in economic downturns, but sentiment may be adverse. ICGT’s permanent capital structure is right for unquoted/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 leveraging synergies from being part of ICG since 2016. Valuations appear conservative, and governance is strong. ICGT focuses on delivering resilient, risk-adjusted returns, and balancing risk and reward. The risks are primarily sentiment-driven on costs, cyclicality and the underlying assets’ liquidity. A 39% discount to NAV appears anomalous with ICGT’s performance.
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