ICG Enterprise Trust

FY’22: you couldn’t ask for more

07 Jun 2022 / Corporate research

ICGT reported another strong year, with an NAV per share total return of 24.4%, its 13th consecutive year of double-digit NAV growth. It materially outperformed the UK public market index, with a five-year CAGR of 16.4% (post all fees), three times the FTSE All-Share index total return. The portfolio generated a 29.4% return on a local currency basis to January 2022. Total proceeds and new investments were a record £342.9m and £303.7m, respectively, generating net proceeds of £39.2m. ICGT’s 36% uplift on exits is in line with historical averages. Investment is focused on businesses with good risk-adjusted returns and defensive growth characteristics.

  • Defensive growth, long-term-value: ICGT’s strategic approach has given investors market-beating returns and just two down quarters out of 24 since the manager was appointed. In both good and bad years, the model has consistently proved that it can deliver resilient returns, driven by underlying company growth.
  • Underlying company metrics: The 30 largest companies’ annual revenue growth was 27.1%, and LTM EBITDA growth was 29.6%. The average EV/EBITDA of these companies was 14.6x (31 January 2021: 14.0x), with PEG halving. The net debt/EBITDA of these companies was 4.3x (31 January 2021: 4.3x).
  • Valuation: ICGT’s NAV valuations are conservative (realisation uplifts average 35%+ long term). The ratings are undemanding, and the ongoing carry value against cost is modest. The 36% discount to NAV is anomalous, we believe, with defensive market-beating returns, and is above the levels seen pre-COVID-19. The yield is 2.1%.
  • Risks: Private equity (PE) is an above-average cost model, but post-expense returns have consistently beaten listed 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 exploiting synergies from being part of ICG since 2016. Valuations and governance appear conservative. ICGT focuses on delivering resilient risk-adjusted returns, and balancing risk and reward. The risks are primarily sentiment-driven on costs and cyclicality, and on the underlying assets’ liquidity. As noted, it seems anomalous to have a consistent record of outperformance and to trade at a 36% discount to NAV.
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