■ Strong increase in realisations
■ Decent demand for investing in mezzanine finance
■ Funds under management down slightly
Intermediate Capital (ICP) - a specialist in private debt, mezzanine finance, leverage credit and minority equity - has enjoyed something of a transformation from earlier this year, when weak realisations and lower investment income dragged profits lower. Indeed, conditions have improved markedly since then and a trading update in July revealed strong realisations, leading to cash inflows of £433m in the first quarter.
That improved trend has continued into the second quarter, too, after the group generated a significant return from realising its investment in Minimax Viking Group. Investor appetite for taking part in mezzanine finance is in evidence as well, with the group's ICG Longbow Fund 111 (a real estate fund) closing at its maximum level of €700m (£591m). In fact, fundraising in the quarter totalled €560m and, while significant realisations generated strong cash flow, that reduced total assets under management by 3 per cent to €12.5bn.
On the credit side, Senior Debt Partners made investments of €274m, taking the total invested so far to €391m, and leaving the group well-placed to achieve its €1bn lending target. Group finances also remain strong, with available cash and unutilised bank lines totalling £768m.
Numis Securities says...
Add. We expect mezzanine finance to remain a core part of the European funding landscape and, in that mid-market space, there's none to rival Intermediate Capital. Activity levels are increasing and we expect a strong performance from both the asset management and investment businesses this year. Accordingly, we are upgrading our 2014 earnings estimates by 5 per cent and expect pre-tax profit of £274.8m, with EPS of 51.8p and a 21.3p dividend. Higher valuations and increased private equity activity are expected to drive good volume growth as well as higher capital gains. The asset management operation is also expected to gain market share and additional fund launches are expected. Our price target is 500p.
Shore Capital says...
Hold. The fall in assets under management is expected to be reversed as new products are rolled out and investments made. Further realisations are coming through, too, which should take realisations to date to around £610m. However, with investments set to increase and realisations unlikely to maintain the level seen in the first quarter, the £768m funding headroom currently available might represent a high-water mark for the company. With the shares trading at a slight premium to 2014's forecast net asset value, we retain our hold stance. Expect 2014 adjusted pre-tax profit of £288m and EPS of 57.3p - our fair value estimate is 435p.
