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IP Group’s nano profits

A heavy reliance on Oxford Nanopore exposes a weakness in IP’s business model
August 3, 2022
  • Oxford Nanopore drags IP Group down
  • Private valuations have held up 

Making lots of small investments in a diverse number of companies should be a relatively straightforward way of managing risk for the likes of IP Group (IPO). However, the half-year results highlighted the paradox of how only investment can over-balance even the most diversified of portfolios. The investment company posted large paper losses on the value of its investments because of price falls at Oxford Nanopore (ONT), whose share price has more than halved in the great tech bust of the past six months.

ONT’s successful initial public offering last summer raised £84mn for IP Group and it still holds a 10 per cent share of the company, in what counts as a rare success over the past 15 years. IP’s allocation management problem is obvious when you look at the current weighting of Oxford within the overall portfolio. At current values, ONT has an 18 per cent share of IP’s total portfolio value of £1.26bn, and makes up over a quarter of its top 20 holdings – meaning that value losses are overly concentrated with ONT, which was the main reason for the fall in IP’s reported profits.

While IPO opportunities have largely disappeared over the past few months, management did say that fundraising for its private listed companies had continued as normal, which was why there were few fair value movements in most of its other holdings, although it's worth noting that Scottish Mortgage has slashed its valuations for private companies.   

Analysts hadn’t held up much hope for IP’s net asset value prior to the results, so the relatively low fair value movement, aside from ONT, came as a pleasant surprise – that is if you are convinced by the 'finger-in-the-air-and-guess' nature of private holding valuation methodology. Fundamentally, the buyout markets are shuttered, so is our buy recommendation. Hold.

Last IC View: Buy, 122p, 5 Aug 2022

IP GROUP (IPO)    
ORD PRICE:85.8pMARKET VALUE:£884mn
TOUCH:85.4-85.9p12-MONTH HIGH:156pLOW: 66p
DIVIDEND YIELD:1.4%PE RATIO:57
NET ASSET VALUE:138pNET CASH:£140mn
Half-year to 30 JunReturn on NAV (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202111811610.50.48
2022-309-310-30.00.50
% change---+4
Ex-div:11 Aug   
Payment:19 Sep