ICG Enterprise Trust plc (LON:ICGT) reported another strong quarter, with an NAV per share total return of 3.6% in 3Q’22 and a portfolio return of 13.8% (local currency) for the last 12 months. Total proceeds and new investments for the quarter were strong, at £63m and £60m, respectively. Disciplined net investment continues, capitalising on attractive opportunities. ICGT saw an average 33% exit uplift, despite the challenging market conditions. It has a progressive dividend policy, is doing share buybacks and has a new, reduced management fee. ICGT’s investee companies offer good risk-adjusted returns and defensive characteristics, giving investors both growth and resilience.
- Defensive growth, long-term-value: ICGT’s strategic approach has given investors market-beating returns and just two down quarters out of 27 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.
- Management fee and cost reduction: ICGT has negotiated a tiered cap to management fee, effective from 1 February 2023. If this had been effective over the last year, it would have saved over £1m. In addition, the manager is now absorbing various costs, saving 25%-30% (we estimate £0.5m p.a.) of ICGT’s other expenses.
- Valuation: ICGT’s NAV valuations are conservative, demonstrated by continued realisations above reported book values. The ratings are undemanding. The 37% 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 2.5%.
- 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: ICGT 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, cyclicality and the underlying assets’ liquidity. A 37% discount to NAV appears anomalous with ICGT’s performance.