August 2023 Monthly

We expect that the 3 August full-year results will show the long-term, resilient trends identified in our note, Exceptional companies, long-term outperformance, and in previous reports. The key business messages are likely to include i) continued material uplifts on exit and conservative mix-adjusted EV/EBITDA multiples showing a realistic NAV, ii) investee company average revenue and EBITDA growth well ahead of benchmarks, showing the value added by PE and resilience, and iii) over half of the portfolio invested directly in companies. The May NAV and portfolio information is available here. PIN is hosting an investor day on 13 September.

• Exceptional companies: Over the past decade, PIN’s companies have, on average, delivered 6.1x the benchmark EBITDA growth. Over five years, the compounding benefit of growth means that PIN companies would double EBITDA, vs. a 13% rise in the benchmark. In 1HFY’23, margin compression was 63% of the benchmark.
• June Factsheet: June saw a 1.6% NAV p/sh fall (valn. gains of 0.5% offset by forex -2.0%), a small net cash outflow (£0.8m), £540m of available finance and 3.8x financing cover. Outstanding commitments fell to £826m (from £857m). The five-year NAV return is 13.3% annualised (world benchmark 10.5%).
• Valuation: PIN shares trade at a 42% 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, can pick the best part of that market, and has competitive operational advantages. Its manager and deal selection, and portfolio structuring, add value. The latest factsheet reports ca.12% annualised NAV growth since inception in 1987. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the global PE market. There are risks around the cycle, and illiquid and unquoted underlying assets. The discount to NAV appears anomalous with risk-adjusted returns, including global diversity.