Standard Life Private Equity Trust (SLPET) reported a 5.8% decline in NAV total return (TR) in H120 (based on June NAV estimate), driven mainly by the COVID-19 induced market downturn in March 2020. While macro factors may trigger further declines, the quality of general partners (GPs) chosen by SLPET coupled with good portfolio diversification by region, sector and vintage are key mitigating factors. SLPET’s capacity to fund future capital calls is supported by its liquid position (£45.3m at end-July 2020) and the £100m undrawn credit facility, with an overcommitment ratio of 48.1% (close to the mid-point of the targeted 30–75%). SLPET maintains its dividend policy and the shares currently offer an LTM yield of 4.1%.
Companies: Standard Life Private Equity Trust
Private equity fund of funds, like Standard Life Private Equity (SLPE), have been on the periphery of the recovery in risk assets. Investors have attempted to anticipate the COVID-19 impact on NAV, given the lag in valuing unlisted companies, but have failed to reflect the rebound in markets. With its discount widening to nearly (25%), SLPE’s shares appear to have been penalised disproportionately.
Private equity fund of funds, like Standard Life Private Equity (SLPE),have been on the periphery of therecovery in global stocks.Investors haveattempted to anticipate the COVID-19 impact on net asset value (NAV), given thelag in valuing privatecompanies, but havefailed to reflect the rebound in markets.With its discount widening to nearly(25%), SLPE’s shares appear to have been penalised disproportionately.
Standard Life Private Equity Trust (SLPET) closed the year ending 30 September 2019 (FY19) with an above average volume of new commitments, with 11 new primary and secondary investments along with its first direct co-investment. Meanwhile, its distribution income (£138.1m) remained above its total drawdowns (£81.6m). SLPET recorded a 10.5% NAV total return in FY19, broadly in line with its performance since inception (10.2% pa), while being clearly ahead of the FTSE All-Share Index (2.7%). Subsequent sterling appreciation resulted in a NAV decline, with a c 5.4% one-year NAV TR as at end-December 2019.
Standard Life Private Equity Trust (SLPET) closed the year ending
30 September 2019 (FY19) with an above average volume of new commitments, with 11 new primary and secondary investments along with its first direct co-investment. Meanwhile, its distribution income (£138.1m) remained above its total drawdowns (£81.6m). SLPET recorded a 10.5% NAV total return in FY19, broadly in line with its performance since inception (10.2% pa), while being clearly ahead of the FTSE All-Share Index (2.7%). Subsequent sterling appreciation resulted in a NAV decline, with a
c 5.4% one-year NAV TR as at end-December 2019.
Standard Life Private Equity Trust (SLPE), has made its first co-investment in Mademoiselle Desserts, alongside IK Investment Partners – see page 9, with more set to follow (up to 20% of NAV over time).
Standard Life Private Equity Trust (SLPE), has made its first co-investment – a stake in Mademoiselle Desserts, made alongside IK Investment Partners – with more set to follow (up to 20% of NAV over time).
Standard Life Private Equity – Q4 2018 trading statement
Standard Life Private Equity Trust (SLPET) has broadened its opportunity set through the recent revision to its investment objective and policy, allowing it to make direct co-investments alongside private equity managers. While offering potential for improved returns, co-investments will only be introduced to the portfolio gradually and SLPET remains focused on maintaining a concentrated exposure to ‘best in class’ primary private equity fund opportunities, investing mainly in funds with a European focus. SLPET’s NAV total return has outperformed the LPX Europe index NAV return over one, three, five and 10 years. The trust pays dividends quarterly and its 3.7% prospective yield is the second highest among the five dividend-paying funds in its private equity fund of funds peer group.
Standard Life Private Equity – Finals to 30 September 2018 | Amedeo Air Four Plus – Interims to 30 September 2018
Companies: Standard Life Private Equity Trust Amedeo Air Four Plus Ltd.
Standard Life Private Equity (SLPE) is a private equity fund of funds and is the only such trust with no performance fee. SLPE invests in a high conviction portfolio of third party private equity funds. At any one time, the Trust is investing through about a dozen core managers and currently the top ten managers’ investments constitute 66% of NAV. At the start of 2017, the company started to increase exposure to North America by broadening its investment criteria to include US domestic funds The team expects exposure to gradually increase, as well as continuing to target secondary investments to take advantage of attractive investment opportunities and help reduce cash drag. In common with peers, realisations from the portfolio have been coming in steadily. SLPE currently has c.13.5% of NAV in cash which the Manager is happy with, giving it the flexibility to be opportunistic if market conditions deteriorate. The company runs an “over-commitment” strategy to try to maintain investment levels. Its long-term target range is 30-75%, and as at 30th September 2018 we calculate that the level was 35% - which is in the target range – considerably up on the September 2017 figure of 24.5%. Last year and this, the manager has been trying to place more emphasis on buying fund interests in the secondary market, which can be used to increase the company’s exposure to attractive funds without adding significantly to outstanding commitments. It has been actively bidding on deals, but reports a very competitive backdrop. A successful transaction would likely absorb a significant amount of cash, and quickly transform the invested position of the company. Since inception in 2001 to 31st July 2018, SLPE has delivered an annualised NAV total return of 9.6% relative to the FTSE All-Share Index’s annualised total return of 6.0% - representing strong outperformance against quoted markets. Indeed, the underlying portfolio returns will have been higher than this, given cash drag over the years and the fact that until 2016 the manager was paid a performance fee. Over the past five years, SLPE is well ahead of quoted markets, driven by strong realisations at material uplifts. The board is targeting a dividend of 12.4p per share, equivalent to a yield of approx. 3.7% on the current share price. Going forward, the board intends to grow the dividend at least in line with inflation and has moved to pay quarterly dividends, further enhancing the attractiveness of the trust to income investors. SLPE currently trades at a discount of c 16%, in line with the peer group average.
Investors have become increasingly aware in recent years of the rich pickings which can be found among companies which are yet to see an IPO. Indeed, statistics show that the range of companies which have already listed on a stock exchange are less and less representative of all of the growth opportunities which exist in an economy. Investment trusts have been quick to respond to this trend, and an increasing number have come to market in recent years looking to invest into unquoted, private companies. Certainly, there are success stories – witness Scottish Mortgage’s investment in Alibaba way before it IPO’d. Naturally, examples like this can lead to investors worrying about missing out and, without addressing the private company investment universe, clearly investors are limiting themselves to only a sub-set of the complete opportunity set. For many investors the worry is that the companies they are ignoring, arguably, have the best long-term wealth creating characteristics. However, there are risks involved in unquoted stocks, and before getting carried away with the new trusts targeting them, it is worth bearing in mind that listed private equity sector, within which many trusts have demonstrated strong returns over various cycles, has for some time been focused exclusively on this area.
Companies: SMT PHI USA AUGM ICGT SLPE NMCN
At the latter stages of a bull market, enthusiasm can sometimes get the better of all of us. Investors always find ways to justify prices for companies at any stage in the cycle. To contrarians, the fact that the price of something has gone up tenfold doesn’t necessarily make it more attractive. However, momentum (as it is now called) is popularly touted as a sustainable investment strategy for the long term. Have the proponents of the ‘ever the greater fool’ theory had a re-brand? Within the world of investment trusts, ‘excessive optimism’ is more easily measured in terms of premiums to net asset value (NAV). This is particularly the case where the majority of a trust’s assets are themselves quoted. Of the 90 trusts (or investment companies) which currently stand on premiums, 55% have illiquid and/or unlisted assets representing greater than 50% of their portfolios. With these trusts, overenthusiasm is perhaps a little less easy to gauge – it is entirely possible that either valuations have moved on since the last official valuation, or that the board is being conservative in its valuations. Either way, each is likely to have its own story and a premium is not necessarily an indicator of excessive optimism. We list below the trusts which have greater than 50% of their assets in listed or publicly traded investments, yet trade at significant premiums. One of the common themes observable is that of strong relative performance over recent times. However, whether you are a contrarian or not (or a follower of momentum as a strategy), we believe that paying anything over a very modest premium is setting yourself up for a fall. Premiums are very rarely sustainable and tend to evaporate at inflection points, exacerbating a poor period of performance from a manager in absolute or relative terms. Indeed, the table below shows how quickly a premium can be eroded, with a corresponding effect on shareholder returns, irrespective of manager performance.
Companies: MAJE SUPP IBT SLPE ICGT IIT SEC JEO SYNC III
Following on from last year’s compelling returns, Standard Life Private Equity’s (SLPE’s) recent results show a modest NAV total return of 1.5%, over the six months to 31 March 2018, that is markedly ahead of the LPX Europe Index’s return of -4.9%. Distributions from underlying companies have remained strong, enabling further new commitments to be made, laying the foundations for future performance.
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Avation is a lessor of 46 commercial aircraft to a diversified airline client base. This morning, the group has released results for the 12-months to 30 June 2020, which illustrate the challenges faced by its customer base as a result of Covid-19, as well as the corrective actions taken by the Board that have resulted in profitability being maintained in the year as a whole. Loan repayment deferrals of c.$24.4m were obtained in the period, in comparison to $13.1m short-term rent deferrals being granted to airline customers and thus emphasising management's focus on liquidity during an unprecedented period for global airlines. Avation again reports that it is currently reviewing alternatives in relation to the 6.5% senior notes due in May 2021. Whilst at this point our forecasts remain under review, and near term challenges remain across the industry, we believe that demand for aircraft from lessors such as Avation will increase in time as a result of airlines being even more reliant upon aircraft leasing firms due to the retirement of older aircraft during 2020 in combination with much weaker balance sheets that are unable to support direct aircraft purchases.
Companies: Avation PLC
As expected following the US banks’ releases, Barclays’ third quarter results saw a sharp reduction in provisions build-up while the emergence of delinquencies has been delayed by the State’s supporting measures. Management continues to expect a reduction in the cost of risk next year. It remains to be seen if this guidance is capable of withstanding new lockdowns or a no-deal Brexit.
Companies: Barclays PLC
In another upbeat update, GHT has confirmed that the business is tracking in line, in turn being driven by strong traction with key customer, ANZ. Here, new sales have driven a 20% increase in contracted customer revenue to >£11m in FY21. As a strategic partner (deeply involved with GHT in bringing new Clareti banking services to market) this extra investment is very encouraging, as it’s indicative of these services‘ strong future potential. Also announced today – GHT state that its transition to a recurring subscription model (commenced just two years ago) is now complete and that ARR now stands at £11.9m, ~+16% annualised organic growth since FY20 y/e. In a tough new business environment, we view this as a highly credible performance. It’s also worth noting that management reference remaining pipeline opportunities, these would further benefit strong forwards visibility – already £22.4m for FY21. Given this – and also as sign of confidence – today we reinstate FY21 forecasts. We look for a reacceleration in top-line growth: +16% y/y to £28.7m at a Group level, in turn driven by c.+24% organic growth in Clareti, to £20m. For valuation – with Clareti still in its relative infancy – we continue to view a sales multiple as most appropriate. Here, we note that peers typically trade in a 5-7x range vs. GHT at 4x our FY21 estimate. This suggests 25-75% upside to fair value for this disruptive company, with a multi-year growth opportunity still ahead.
Companies: Gresham House
Record’s Q221 trading update confirmed that its new $8bn dynamic hedging mandate has started and that, prior to this, assets under management equivalent (AUME) expanded by 4% in the quarter. The group continues to work on developing new products and is deploying technology to enhance its ability to deliver these and existing products cost effectively.
Companies: Record plc
The interims confirmed that Covid-19 was minimally disruptive operationally in H1 20 and, ironically, may have improved both of R&Q’s divisions’ mediumterm trading outlooks. As the pandemic and other industry events have generated significant losses for insurers, they have created the current ‘hardening’ market driving demand for Legacy and Program Management.
Companies: Randall & Quilter Investment Holdings Ltd.
Agronomics has announced it has conditionally raised £10.0m gross from an equity issue at a price of 6.0p, which represents a 6.8% premium to the most recently reported NAV per share of 5.62p. Assuming the company's post-raise cash balance is £8.15m, after repaying a £1.9m bridging facility, we estimate the new NAV per share to be c5.7p. We see significant potential in the cultivated meat sector and believe Agronomics is well positioned to support this developing sector and generate strong returns from these investments. We see upside in Agronomics' portfolio and have today initiated coverage with a Buy recommendation.
Companies: Agronomics Limited
Following on quickly from its impressive full year results, these interim results confirm that our confidence for growth in the Program Management business was not misplaced.Contracted Premium increased 95% YoY (and 12% ahead of December 2019) to $925m –a stone's throw away from the $1bn 2020 guidance set in 2018. At the same time, Gross Written Premium (GWP) grew 42.6% to £247.2m, resulting in Economic EBITDA turning positive, at £0.8m compared to a loss of £0.3m in 1H19
Agronomics is an investment company building a portfolio of investments in the developing alternative protein sector. The company is focused on early stage investments, offering attractive valuations and significant upside potential. Importantly, we believe Agronomics represents an opportunity for public investors to gain access to early stage private companies, which might not otherwise be available. We expect the cultivated meat sector to be driven by a number of global mega trends that will increase public awareness of the issues the sector is aiming to overcome. We see strong upside in Agronomics' existing portfolio and initiate coverage with a Buy recommendation.
Secure Trust Bank’s (STB) Q3 trading update disclosed that Q3 was stronger than expected and FY20 earnings are likely to be well ahead of consensus forecasts. Loan repayment holidays in its Motor Finance and Retail Finance divisions were down remarkably and credit quality is not deteriorating. Loan demand is strengthening after the lockdown. Capital and liquidity remain good. The bank remains cautious due to continued COVID-19 and Brexit uncertainty and is still not providing formal guidance. We are upping our earnings forecasts and fair value from 1,704p to 1,756p. In our view, the valuation remains depressed compared to fundamentals with banking stocks still out of favour. STB trades on an FY20 P/BV of 0.53x, yet it has a strong track record of value creating returns (ROE above COE), a good capital base and liquidity. The Q3 good news reinforces our view that we are unlikely to see book value deterioration during this downturn to justify any NAV discount.
Companies: Secure Trust Bank Plc
Litigation Capital Management has announced FY20 results with gross profit up 7% to A$21.7m and PBT of A$9.2m, slightly behind expectations albeit the Group had already flagged that delays to 3 cases during the year would result in resolutions in FY21, thereby impacting FY20 results. That said, excellent strategic progress through the year and good news flow as well as increasing scale suggests more value to come. Reiterate buy
Companies: Litigation Capital Management Ltd
There was an eclectic mix of property companies to feature in the top price movers for September. Top of the tree was private rented sector and residential development specialist Sigma Capital Group, with a 34.2% rise. The group launched a £1bn joint venture with EQT Real Estate, the real estate platform of global investment firm EQT, to deliver 3,000 private rental homes in Greater London. Micro-cap investor Panther Securities also hit double-digit gains, while Macau Property Opportunities saw an uplift in its share price after announcing debt refinancing and a disposal. CLS Holdings, the investor in offices in Germany, France and the UK, continued to see a recovery in its share price – which has risen 15.1% in the last three months. Off the back of solid results, Berlin residential landlord Phoenix Spree Deutschland saw its share price gain 7.2%. Schroder REIT’s share price rose 6.6% in the month as it embarked on a share buyback programme, while Irish commercial property investor Yew Grove REIT also saw positive shareholder reaction to amending its investment strategy to increase its target loan to value ratio to 40%.
Companies: SUPR DIGS CRC PSDL ASEI TPON RLE UKCM BREI BCPT RGL SIR SLI TOWN CAL
ANGLE plc (AGL.L): Acceptance of FDA submission | Feedback plc (FDBK.L*): Partnership agreement | Open Orphan (ORPH.L): Human Challenge Study Model contract with UK Government
Companies: AGL FDBK ORPH
Whilst there are some bright spots, such as payments companies, which are beneficiaries of the shift to online shopping, fears about the potential impact of COVID-19 have hit valuations across much of the financial sector. The fall in Polar Capital Global Financials Trust’s (PCFT’s) NAV reflects this situation.
Companies: Polar Capital Global Fincls Trust
Deltic Energy is entering an exciting phase in its development based on its fully funded joint-venture projects with Shell. Preparations are now underway for an exploration well to test the Pensacola Zechstein prospect in the SNS (Southern North Sea). Deltic has indicated that it expects the current contingent well commitment to become firm on schedule by December 1, 2020. Drilling, according to Deltic, should follow in H2 2021. We see scope for positive news flow over the next few months, not least from the evaluation of Shell’s recently obtained processed 3-D seismic over Pensacola. Following Pensacola, the Selene prospect is scheduled to be drilled in mid-2022. The recent 32nd Round UKCS licence awards greatly expands Deltic’s exploration potential in the CNS and particularly the SNS Carboniferous fairway. Here some highly prospective acreage has been obtained.
Companies: Deltic Energy PLC
To achieve YoY revenue growth over H1/20A despite the challenges of Covid-19 and its impact on the travel sector is testament to Equals' resilience and increasing focus on B2B and International payments services. While weaker gross profit and EBITDA margins have impacted profitability in H1/20, we see potential for an earnings recovery in H2/20 given cost reduction measures currently being undertaken. This should lead Equals to cash breakeven in Q4/20 and FCF positive by early FY21.
Companies: Equals Group Plc