ICG Enterprise Trust plc (LON:ICGT) reported another strong half-year, with an NAV per share total return of 10.9% and sterling portfolio returns of 12.4% (local currency 7.4%). Total proceeds and new investments were strong, at £107m and £144m, respectively. At this stage of the cycle, disciplined net investment is expected, capitalising on attractive opportunities, especially in secondaries. ICGT saw an average 25.2% exit uplift, despite the challenging market conditions. Investment remains focused on businesses with good risk-adjusted returns and defensive growth characteristics. The board is optimising shareholder returns with a progressive dividend policy and share buybacks.
- Defensive growth, long-term-value: ICG Enterprise Trust’s strategic approach has given investors market-beating returns and just two down quarters out of 26 since the manager was appointed. In both good and bad years, the model has consistently proved that it can deliver resilient returns, driven by underlying company EBITDA growth.
- Underlying company metrics: The top 30 companies showed strong LTM revenue and EBITDA growth of 27.5% and 26.3%, respectively. Average EV/EBITDA was 14.5x (31 Jan’22: 14.6x), with a PEG of just 0.55x. Net debt/EBITDA was 4.3x (31 Jan’22: 4.3x). Enhanced disclosure helpfully showed dispersion around these metrics.
- Valuation: ICGT’s NAV valuations are conservative, demonstrated by continued realisations above reported book values. The ratings are undemanding. The 45% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and is above the levels seen pre-COVID-19. The 2023E yield is 2.9%.
- Risks: Private equity (PE) is an above-average cost model, but post-expense returns have consistently beaten public markets. Actual experience has been of continued NAV outperformance in economic downturns, but sentiment may be adverse. ICGT’s permanent capital structure is right for unquoted/illiquid assets.
- Investment summary: ICG Enterprise Trust has consistently generated superior returns, by adding value in an attractive market, having a strategic focus on defensive growth and leveraging synergies from being part of ICG since 2016. Valuations appear conservative, and governance is strong. ICGT focuses on delivering resilient risk-adjusted returns, and balancing risk and reward. 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 45% discount to NAV.