Pantheon International: Exceptional companies, long-term outperformance

The November 2022 factsheet gave some key information, including the NAV (469.5p), NAV return (4%), net cash generation (£34m), distributions (£111.5m), calls (£77.5m), period-end cash (£52m) and commitments (£848m, including £303m new commitments). The 1H results announcement showed that i) uplifts on exits were 33%, slightly above the FY’12-22 average, ii) exits were at an average 3.1x multiple to cost, iii) 54% of the portfolio is invested directly in companies, iv) average revenue and EBITDA growth of 23.0% and 10.6%, respectively, were well ahead of benchmarks, and v) the EV/EBITDA multiple was 17.3x. We note that the PEG is 1.6x, around a fifth of the benchmark.

  • Exceptional companies: Over the past decade, PIN’s companies have, on average, delivered 6.1x the EBITDA growth of the benchmark. Over the average life of an investment, the compounding benefit of growth means PIN companies would double EBITDA, against a 13% rise in the benchmark. In 1HFY’23, margin pressure saw the benchmark EBITDA growth rate slow by 92%, against just 58% at PIN.
  • Long-term outperformance: By investing in exceptional private companies, PIN has given investors superior returns. PIN’s NAV has outperformed the MSCI World Index and FTSE All-Share total return over each of one, three, five and ten years, and since inception. Despite the drag of a widening discount, PIN’s share price total return over 10 years is 19%, ahead of the benchmark (on an average discount, 66% ahead).
  • Valuation: PIN shares trade at a 44% discount to NAV, despite their long-term outperformance. We note the double discount, as the “real” NAV is likely to be above the book value, given the consistent uplift to carrying value achieved on exits. The 11-year weighted average uplift achieved on exit has been 31%.
  • 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 and their valuation (PIN has permanent capital and proven exit uplifts) and iii) sentiment to the sustained discount. Short term, there can be forex volatility.
  • Investment summary: PIN is in an attractive market, can pick the best part of that market, and has competitive operational advantages. Its manager, deal selection and portfolio structuring add value. To the end of January 2023, since inception in 1987, this delivered a 12.2% NAV CAGR. 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 relative to risk-adjusted returns.
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