The key messages from ICG Enterprise Trust plc (LON:ICGT) June 2024 shareholder seminar were i) ICGT has a focused and differentiated investment strategy with a dedicated investment team, ii) operating performance remains strong and capital structures are well positioned, iii) debt pricing is reducing and debt availability is accelerating, iv) access to the ICG platform brings substantial benefits, and v) the board has a focused and deliberate approach to long-term shareholder value. In our view, what defines ICGT’s uniqueness is the “defensive growth” approach, combined with the ICG manager benefits. This has delivered five-year, local currency portfolio returns of 17.1% CAGR, NAV p/sh. returns of 14.6% and shareholder total returns of 11.2%.
- Value creation: ICG Enterprise Trust adds value with i) an investment strategy delivering defensive growth through cycles (the key, in our view), ii) a managed cost base, with a management fee rate cap and ICG cost-sharing arrangement, iii) a balanced capital allocation, and iv) effective messaging/shareholder engagement.
- Capital allocation: The trust’s approach to shareholder distributions includes a progressive dividend policy (FY’21 24p, FY’22 27p, FY’23 30p, FY’24 33p), a long-term share buyback programme (£24m returned with 128 days in market Oct’22 to 13 Jun’24) and opportunistic buybacks (£7.4m in three days in 2024).
- Valuation: ICGT’s NAV valuations are conservative, demonstrated by continued realisations above reported book values. The ratings are undemanding. The 36% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and twice the levels seen pre-COVID-19. The 2024E yield is 2.7%.
- Risks: 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. The trust’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, primarily, are sentiment-driven on costs, cyclicality and the underlying assets’ liquidity. A 36% discount to NAV appears anomalous with ICGT’s performance.
