IP Group trades at a steep discount to NAV

The fact that venture capital vehicle IP Group (IPO) is highlighting that only 16 per cent of its companies need to raise money in the next year as a positive, demonstrates how difficult it is in private markets at the moment. The risk of raising money in this high interest rate environment is that the companies' valuations then get marked down.

Net asset value (NAV) of the portfolio has fallen from £1.41bn to £1.31bn which doesn’t look too bad. But if all its assets were marked to market it would likely be much lower. One listed company in the portfolio, Oxford Nanopore (ONT), had dropped £27.8mn to a fair value of £178mn by the time of the results. Admittedly, its share price has since risen by around 20 per cent.

The fund is heavily exposed to life science and deep tech. Medical companies Istesso, Akamis, Pulmocide and Cresecendo are all about to reach clinical milestones. Valuations can go either way but there is hope of a boost to their valuations in the coming 12-18 months.

This delay in discovering the prices of the assets is why the company trades at a 50 per cent discount to its NAV. The discount seems a little steep, though, given that 86 per cent of the 14 portfolio funding rounds completed in the year were at or above previous valuations.

House broker Numis points to the steep discount rather than a growing NAV for its optimistic share price target. The broker no longer expects IP Group to achieve 15 per cent NAV growth for the full year but has a price target of 130p. We see potential upside but there is too much uncertainty in the private markets for us. Stick to hold.  

Last IC View: Hold, 89p, 3 Aug 2022