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Event | Do you know the value of your business? It’s time you do!

We reviewed ICGT’s recent Capital Markets Day in our note, Investor Day – defensive growth in practice. The key takeaways were i) a clear defensive-growth investment strategy, targeting superior, long-term, risk-adjusted returns, ii) a differentiated portfolio, with exposure to profitable, cash-generative businesses with downside resilience, iii) a disciplined approach to capital allocation, with shareholder distributions through dividends and buybacks, and iv) a dedicated investment team, focused exclusively on the trust but leveraging Intermediate Capital as the manager. We expect the interim results to end-July (due mid-October) to reflect these trends. Market wide, there has been commentary about green shoots in PE activity.

  • ICGT’s investment approach: We believe investors get a good understanding of the differentiated approach from slides 26-40 of the CMD presentation. In summary, they explain the benefits of Intermediate Capital as the manager, how ICGT accesses the market, and why it is in mid-large, developed-market buyouts with top-tier managers.
  • Green shoots: In recent reporting/CMDs, a number of listed PE vehicles have reported the early “green-shoots” of a recovery in PE activity. It is still early days, but this is in line with our expectations, driven by the reduction in perceived risk regarding the US recession and a view that interest rates are peaking.
  • Valuation: ICGT’s NAV valuations are conservative (realisation uplifts). The ratings are undemanding, and the ongoing carry value against cost is modest. The 37% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and is above the levels seen pre-COVID-19. The 2024E yield is 2.8%.
  • Risks: PE’s post-expense returns are consistently market-beating, but this is an above-average cost model. Even though actual experience has been of continued NAV outperformance in economic downturns, sentiment is likely to be adverse. We believe 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 strategic focus on defensive growth and exploiting ICG synergies. Valuations appear conservative, and governance is strong. ICGT focuses on delivering resilient, risk-adjusted returns. The risks are primarily sentiment-driven on costs and cyclicality, and on the underlying assets’ liquidity. It seems anomalous to have a consistent record of outperformance and to trade at a 37% discount to NAV.
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