ICG Enterprise Trust

FY’21 results: blew the roof off, not just the doors

20 May 2021 / Corporate research

  • How these returns were delivered: Our September 2020 note Defensive growth: explaining downside resilience noted why PE outperforms in downturns. ICGT further reduces risk with a “defensive growth” strategy. 4QFY’21 saw a strong performance in two of its largest listed holdings, PetSmart and Telos.
  • Outlook: The growth side of “defensive growth” is now likely to be evident. ICGT is investing heavily in historically above-average-return HC investments and £201m of resources to take strong pipeline opportunities. In the first two months, FY’22 realisations are two thirds of the five-year annual average.
  • Valuation: Valuations are conservative (uplifts on realisations averaging 36% over 10 years). The ratings are undemanding, and the carry value against cost modest. The 23% discount to NAV is anomalous, we believe, with defensive market-beating returns. The yield is 2.2%.
  • Risks: PE is an above-average cost model, but post-expense returns are market-beating. Even though actual experience has been continued NAV outperformance in economic downturns, sentiment is likely to be adverse. 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 defensive growth investment policy and exploiting synergies from being part of ICG since 2016. The valuations and governance appear conservative. It has an appropriate balance between risks and opportunities. The risks are primarily sentiment-driven on costs and cyclicality, and the underlying assets’ liquidity. As noted, it seems anomalous to have a consistent record of outperformance and to trade at an 18% discount to NAV.
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