July 2023 Monthly

In our note, Exceptional companies, long-term outperformance, we highlighted the continued operational delivery by the model, despite market challenges. Some key business messages were that i) uplifts on exits were 33%, slightly above the FY’12-22 average, ii) exits were at an average 3.1x multiple to cost, iii) 54% of the portfolio is invested directly in companies, iv) average revenue and EBITDA growth of 23.0% and 10.6%, respectively, were well ahead of benchmarks, and v) the EV/EBITDA multiple was 17.3x. We expect the May year-end NAV, published in early July, to reflect a continuation of the robust business trends.

• 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.
• April Factsheet: April saw a modest 0.8% NAV per share fall (valuation gains of 0.6% offset by forex), a small net cash outflow, 3.6x financing cover and available finance of £534m. Outstanding commitments fell to £863m (from £890m). PIN bought back £1.2m-worth of shares at an average discount of 50%.
• Valuation: PIN shares trade at a 46% 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.