CT Private Equity (CTPE) treaded water during the first half of the year despite making realisations totalling more than £50m and at a 35% premium.
The £477m fund, which invests in both private equity funds and stakes in individual private companies, reported a net asset value (NAV) total return of 0.8% for the six months to the end of June as the share price slid 4.5%. At the same time, the discount widened from 33.4% to 37.6%.
That was despite the company buying back 1.25 million shares over the six-month period for £5.8m, which added 0.6% to NAV, and a strong period for realisations, which were achieved at an average 35% premium to the prior valuation.
Realisations and associated income totalled £52.3m during the six months, up 31.4% on the same period last year. The most significant realisation was pet retailer Jollyes for £18.6m (with a further £400,000 expected) at 4.2 times cost.
Charles Murphy, an analyst at Singer Capital Markets – joint broker for the fund – said the modest uplift in NAV was ‘an artefact of reporting timelines’ with 85% of valuations being as at 31 March and only 15% as at 30 June, and not reflective of underlying performance.
With this year’s exits already exceeding the 2023 total and trading at investee companies remaining healthy, he expects returns to ‘accelerate in the second half with earnings growth and exits increasingly translating into the NAV’.
The 6.3%-yielding fund is currently trading on a 36% discount to NAV, wider than its 12-month average (33%) and private equity fund-of-funds and hybrid peers (33.1%).
Murphy expects the discount to narrow as returns ‘normalise’ in line with a 10-year average of 14% per annum. Over the next 12 to 24 months, he reckons CT Private Equity has the potential to deliver total shareholder returns of at least 25% from a combination of discount narrowing and NAV growth.
Winterflood analyst Elliott Hardy said realisations of around 10% of net assets in the first half at a 35% uplift offered ‘transactional evidence to support the prevailing NAV’.
‘That said, we expect CTPE’s managers will be hoping for a further recovery in natural liquidity to help reduce the fund’s gearing over the short to medium term. There are signs that this may be on the horizon.’
At the end of the period, the fund had net debt of £91.3m, equivalent to a gearing level of 15.5% – up from 14.6% at the end of 2023.
Stifel analyst Iain Scouller pointed to the fund’s ‘relatively higher leverage and commitments’, which gives him little optimism of the discount narrowing substantially.
‘The managers say a number of companies are planning exits for later this year, which would be helpful for cash flow,’ he said, ‘but there is limited visibility on these at this stage.’
Stifel retained its ‘hold’ recommendation on the shares and gave a ‘fair valuation’ of 485p (previously 480p) – a 30% discount to the latest NAV.
Good grounds
Chair Richard Gray said there were ‘good grounds for confidence that further substantial gains will be possible in the second half’.
‘Specifically, the partial hiatus in dealmaking which typified the period of adjustment last year and the start of this year now appears to have passed,’ he said. ‘An uptick in activity is generally positive for asset values.’
Manager Hamish Mair (pictured) said the dealflow of funds and co-investments ‘remains very strong with hundreds of investment opportunities appraised’.
‘These come from investment partners which we have invested with for many years and from others who are newer in our network,’ he said.
New investments during the period totalled £35.9m across four new fund commitments, one new co-investment and five significant follow-on investments to existing portfolio companies.
Dividends declared for the six-month period totalled 14.02p, in line with the fund’s stated policy of aiming to deliver an annual yield equivalent to at least 4% of NAV.