Intermediate Capital plays the middleman

Intermediate Capital (ICP) enjoyed a very solid half after higher-than-expected fundraising brought in third-party assets-under-management (AUM) of $13.8bn (£10.2bn.) The beauty of not going through the hard graft of marketing and acquiring clients’ funds and acting instead as middleman between investors and companies that require investment capital or private debt. This happy situation was reflected in the fee income that this core activity generated – fees for third-party funds were up by an impressive 29 per cent to £199m.

In common with other fund managers, the area of greatest growth for ICP is currently private equity. This single business segment saw AUM increase by 50 per cent to $21.8bn, with $9.1bn of third-party assets added during the half. ICP’s Europe VIII is currently 15 per cent invested, giving a long lead time before the manager needs to embark on another round of fundraising from third parties. Currently, ICP looks well on course to generate a promised $40bn of inflows over four years, with the minimum target currently set at $7bn annually.

There still needs to be a note of caution over whether the market conditions that have underpinned ICP’s fundraising can continue. But, for now, management has reiterated its medium-term guidance for low double-digit investment returns, an operating margin of above 50 per cent and signalled much greater visibility on long-term fees. Broker Panmure Gordon noted that the impact of higher-than-expected fundraising is to bring the group’s predicted cash flow forward. Based on Panmure’s EPS forecasts for 2022, ICP currently trades at a forward price/earnings ratio of 16.5, which is about mid-range for the sector and suggests more room for upward growth. Speculative Buy.

Last IC view: Buy, 2,319p, 8 Jun 2021