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Intermediate Capital in the credit sweet spot

With demand for debt assets surging, the fund manager is having a much better crisis than 2009
November 17, 2020
  • Shares hit eight-month high on strong half-year results
  • Half-year dividend up 13 per cent to 17p
IC TIP: Hold at 1,675p

In the clunky vernacular of ratings agencies, the economic fallout from Covid-19 is what is termed a negative credit event for corporates. As a result, the pile of investment grade bonds has shrunk, and risks are up everywhere. While one might see this as bad news for a private debt-focused asset manager like Intermediate Capital (ICP), results for the six months to September suggest otherwise.

Businesses might be struggling under the weight of loans, but they also cannot live without them. Having raised €2.6bn (£2.3bn) for deployment in the first half, the FTSE 100 group expects client inflows to hit €6bn by the end of March. Sitting in the sweet spot between investor hunger for yield and corporate hunger for cash, the group has also accelerated its fund launch timetable and now expects to raise its eighth European mandate in the next 12 months.

Encouragingly, this has not been mirrored by a growth in the on-balance sheet investment portfolio, where value dipped slightly to €2.41bn. Profits from this division nonetheless doubled to £103m and contributed the balance of earnings in the period.

Consensus analyst forecasts are for earnings per share of 65.5p for the March 2021 year-end, rising to 96.8p in FY2022.

Analysts at Numis, anticipating a modest increase in those estimates, argue the last nine months have “proven the resilience of the business in a real-world downturn”. We agree, in large part because the fund management structure has shifted liquidity risks to third parties. Yet that success looks well reflected in an enterprise value of 42 times cash profits – right at the top of a five-year range. Hold.

Last IC View: Hold, 1,346p, 4 Jun 2020

INTERMEDIATE CAPITAL (ICG)  
ORD PRICE:1,675pMARKET VALUE:£4.9bn
TOUCH:1,673-1,675p12-MONTH HIGH:1,896pLOW: 452p
DIVIDEND YIELD:3.2%PE RATIO:31
NET ASSET VALUE:474pNET DEBT: 67%
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201930415350.815
202035219866.917
% change+16+29+32+13
Ex-div:10 Dec   
Payment:8 Jan