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The key messages from the 1Q Update for the period to 30 April 2021 were i) highest ever quarterly realisation proceeds – at £100m, they are already ca.70% of the annual average for the past five years, ii) 12 full exits at 42% uplift to carrying value (evidencing the conservatism in the NAV) and at 3.9x cost multiples, iii) portfolio return on a local currency basis of 3.4% (sterling return: 2.2%) despite a partial correction in the listed Chewy share price ‒ NAV per share rose 1.6%, iv) £32m of investments (63% High Conviction (HC) investments inc. two direct investments); there is a substantial pipeline and available liquidity of £290m, and vi) 1Q dividend 6p, FY intention at least 27p.

  • Outlook comment: “We believe the quality and breadth of investment opportunities we are seeing will lead to a very strong year of deployment for our High Conviction Investments. Our Portfolio is balanced by sector, geography and investment type, and we are well positioned to continue executing our investment strategy”.
  • Hardman & Co comment: A good period for realisations had been well flagged by prior announcements. The new deployment detail was encouraging, especially for HC, which historically has been above average return. The faster growth in FY dividend (+3p vs. +1p estimate) clearly signals ICGT’s confidence.
  • Valuation: Valuations are conservative (medium-term uplifts on realisations averaging 35% to the latest book value). Ratings are undemanding, and the carry value against cost is modest. This gives confidence that the accounting date NAV is realistic. The 25% discount to NAV is above pre-COVID-19 historical levels.
  • Risks: PE is an above-average cost model, but post-expense returns are market-beating. Even though actual experience has been of continued NAV outperformance in economic downturns, sentiment is likely to be adverse. 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, with a defensive growth investment policy, and exploiting synergies from being part of the ICG family. The valuations and governance appear conservative. It has an appropriate balance between risks and opportunities. Risks are primarily sentiment-driven on costs and cyclicality, as well as the underlying assets’ liquidity. It seems anomalous that a business with a consistent record of outperformance is trading at a 23% discount to NAV.
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