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Upcoming Event | Hardman & Co: Bank North management presentation and Q&A

In our note, 'ICGT’s steps to value-adding portfolio construction', published on 22 February 2021, we reviewed how ICGT’s approach to active portfolio construction and management added value to its investors. ICGT has a stringent filtering process, which starts with the whole PE market, but then narrows down investments to buyouts – in developed markets, mainly in the mid-market/larger deals and through leading PE managers. Investments must then fit ICGT’s defensive growth strategy. Third-party manager relationships are leveraged to generate high-conviction (HC) ideas. This has led to an 11% NAV total return over 9M’20 and 202% over 10 years.

  • 3Q update: Key points from 4 February 2021 update: i) strong underlying investment gains (+12.1% local currency portfolio return), ii) High Conviction Investments (HCI) up 17.6%, iii) third-party funds up 7.6%, iv) £72m realisations and sales (invested £30m, 42% HCI), and vi) a stable 5p dividend in the quarter.
  • Realisation of Telos: On 8 February 2021, ICGT announced the realisation of Telos, which generated an estimated 29.5p per share uplift in NAV (2.4%). At 3Q, Telos was ICGT’s fourth-largest underlying investment, at ca.2.9% of ICGT’s portfolio value. The investment was realised at a ca.33x multiple of initial cost.
  • Valuation: Valuations are conservative (medium-term uplifts on realisations averaging 30%+ 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 20% 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 20% discount to NAV.
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