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ICG Enterprise Trust

FY’24: portfolio companies performing strongly

16 May 2024 / Corporate research

The key message from ICGT’s FY’24 results (to January) is the continued strength of the operating companies, which keep delivering mid-teen EBITDA growth. Despite challenging markets, margins have widened, which should help allay some concerns over the impact of the higher-rate environment. Target returns are “broadly unchanged”. FY’24 saw about half the usual investment and realisation activity (and fewer realisations saw less NAV uplift on exit). A degree of volatility is to be expected, and the five- and 10-year total annualised NAV per share return (14.6% and 13.2%, respectively) are a better reflection of what investors are getting from the defensive growth strategy. ICGT has a balanced capital return policy.

  • ICGT’s investment approach: We detail, below, how ICGT’s defensive growth strategy works in practice and why it has delivered long-term EBITDA outperformance. Consistency in performance greatly enhances compounding effects. This has led to double-digit share price returns (five-year 11.2% annualised).
  • Capital allocation: Shareholders saw distributions of £35m (FY’23 £22m) with a 10% increase in dividend, to 33p, and an increase in the long-term buyback programme. It also announced an opportunistic up-to £25m buyback programme to take advantage of the current, unusually high, level of discount.
  • Valuation: ICGT’s NAV valuations are conservative, demonstrated by continued realisations above reported book values. The ratings are undemanding. The 38% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and twice the levels seen pre-COVID-19. The 2024E yield is 2.7%.
  • 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 38% discount to NAV appears anomalous with ICGT’s performance.
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