September 2022 Monthly

We reviewed PIN’s results in our note, FY’22 results: it is not just lionesses that roar, published on 11 August. In summary, FY’22 was a record year for PIN in terms of NAV growth, cash generation and investment activity. Valuation gains were 24.4% (nearly double the 10-year average), forex was 7.2%, and a small buyback benefit saw 31% NAV growth net of all fees. PIN also saw its largest-ever single company exit, and uplifts on exit averaged 42%. This performance followed outperformance over the previous 34 years through multiple cycles. Despite this, PIN, and the rest of the PE sector, are trading at near-record discounts to NAV.

• Market’s perception of the discount: The detail of the results should moderate concerns that the current NAV is not realistic – with large uplifts on exit, a falling PEG ratio of 0.66x, the detailed verification processes, multiple evidence of PIN’s conservative culture and the absence of motivation to inflate valuations.
• Resilient outlook: We believe PE, and PIN, should prove resilient to challenging economic conditions, noting the incremental operational, strategic and financial value PE adds to investee companies. PIN invests in resilient sectors and mature/profitable companies, with just 4% venture exposure. Portfolio gearing is modest. We note the large NAV outperformance in previous downturns.
• Valuation: PIN shares trade at a 42% discount to NAV, despite their long-term outperformance. We believe the “real” NAV is likely to be above the book value on the accounting date, given the market rises and uplifts to carrying value achieved on exits. PIN consistently sees material uplifts on exit realisations.
• 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. To the end of July 2022, this delivered 12.4% annual 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 appears anomalous with risk-adjusted returns.