Another Oversold Financials Idea!

23rd May '14 by jjis

5 comments 11924 reads

After my 20%+ gains earlier in the year on Investec (LON:INVP), I thought I would try another trade in the financials sector. I'm staying in the I's with Intermediate Capital (LON:ICP) which announced final results earlier this week. You can read them for yourself in the news section but they didn't look too bad to me - certainly not to justify a 10% fall in the share price. Looks like a big clumsy seller has been in operation. The only negative I could find was a bearish note from Numis, who have a 363 pence price target, which I saw mentioned on Ticker Report, although I note others are more bullish and have price targets beginning with a 5.

Any way this one may not be to everyone's taste as it is slightly esoteric is so far as it is a specialist asset manager providing mezzanine finance, private debt, leveraged credit and minority equity to mid market corporates in Europe, Asia and the US and to real estate in the UK. Some of their balance sheet is invested alongside their funds and also provide seed capital when they are launching new products. Aside from income from managing the funds they also make irregular capital gains on their own investments as and when they make successful disposals of their largely private equity / venture capital style investments. These tend to be lumpy and have been strong in the last year given the favourable market conditions. Given the nature of their investments they do however also have to make provisions and take write downs when things don't go as planned. The disposals can also reduce their assets that they have under management and they therefore then need to work hard to replace these which is the situation at the moment.

The earnings from the asset management and other recurring fees or what they describe as "core" earnings generally underpin the dividend with the capital gains being a big swing factor for earnings over and above that. Talking of dividends that is the other main attraction with this one. They declared a final of 14.4 pence which alone yields 3.6% at 400 pence and is due to go XD on 11th June 2014. This made 21 pence for…

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Bonitabeach

23rd May '14

Hello Jjis,

I suspect that the share price drop was triggered by the disclosure that the investment portfolio had dropped in value year on year by 24% from £3,030M to £2,311M. It is this investment portfolio that is the source of the majority of profit so smaller rations to look forward to? Intermediate Capital (LON:ICP) can always bulk up the portfolio with new investments but the gestation period to realisation seems to be 5+ years. A lack of obvious value in the UK and a loss of nerve in continental Europe could be inhibiting the management.

My opinion: fair value but not a bargain.
Disclosure: Long (LON:ICP)

17th Jul '14

For anybody with an interest in Intermediate Capital (LON:ICP) it could be worth your time to take a look at Blackstone LLP (N:BX) and Apollo Global Management LLC (N:APO) (other investment opportunities are available).

Blackstone has just published some very impressive 2nd quarter results (http://www.blackstone.com/) with Economic Net Income 60% ahead of analyst forecasts. Despite this and a yield of 5%+ still on a forward PER <10.

If you have the stomach for the inherent currency risk facing the UK investor now could be a favourable time to buy with $1.75/£.

These enterprises are a geared play with a global reach which is just that; global. They now are underpinned by four investment options Credit/Real Estate/Private Equity/Hedge Fund Management.
The patient investor should be rewarded with continuing profit growth and the potential for a market re-rating and currency appreciation. Please DYOR as profits, market ratings and currencies can all depreciate as well as rise.
Disclosure: Long (LON:ICP) – (N:BX) – (N:APO)

Bonitabeach

jjis

23rd Jul '14

We have had an update a decent IMS from Intermediate Capital Group (ICP) today
which saw assets under management (AUM) increase by 2% as new third party money helped to offset realisations by older funds. They also talked about continued investment for direct funds, improving ROCE via the £100 million share buy back which they have done £13 million of so far and their longer term aim of re-gearing the balance sheet to a range of 0.8 - 1.2 times, over the course of the next two years. The shares have finally made some progress from the 400 pence level where I recommended them to about 420 pence today although they have gone ex the 14.4 pence final since then for a total return of 8.6% so far - but I still think there is more to go for here.

28th Jan '15

I've written an update on this discussing whether you should stay or you should go and take the money and run. You can read it here if that is of interest.

Website: Compoundincome.org

Twitter: @CompoundIncome

johnrosier

Enjoyed reading your take on it. My pre-market post on it below. Have resisted selling so far!

Intermediate Capital (FTSE 250 Index, Market capitalisation; £1.87bn, 481p and 4.6% of JIC Portfolio): the company has issued a trading statement this morning; it has increased assets under management by 8% to €14.9bn in Q3 ending 31st December 2014 with third party fee earning assets under management up 12% to €10.8bn. It has had a good nine months fund raising with €3.1bn raised during the period, €1.4bn of that in Q3. It says that a full pipeline is expected to result in very strong fundraising over the coming months.

On the investment front it says that it has maintained “investment pace” in a competitive market and that it has a healthy pipeline of investment opportunities.

It reports that the balance sheet is well funded with available cash and unutilised bank lines of £367m at 31 December 2014. The Group has returned £69m to shareholders through the current £100m share buyback programme, which is expected to be completed ahead of the full year results announcement. It says; “Work is ongoing to improve our return on equity and re-gear the balance sheet and, as previously communicated, we will update the market on the actions being taken with the full year results”.

The CEO, Christophe Evain said; “ICG has maintained strong momentum, both in investor demand for our funds, and in the deployment of capital. In an era of diminished returns for institutional investors, investor demand continues to be strong for alternative credit strategies due to increasing awareness and an understanding of the role these strategies play in a portfolio. We see attractive opportunities and expect the momentum we have reported so far this financial year to continue.”

Conclusion: The increase in funds under management looks pretty good to me as does the forward looking statements about future fundraising and investment opportunities. I have liked the way that the CEO previously set out his target of achieving a 13% return on equity at the business which he still seems to be committed to achieving. In my opinion, these results and its ongoing share buyback program point to a further improvement in ROE at the full year. On consensus forecasts the shares are valued at 13.9x March 2015 with a yield of 4.6%, 12.4x March 2016 with a yield of 5.1% and 11.3x March 2017 and a yield of 5.5%. Since I wrote my New Year Review of Holdings on January 6th the share price is up 15.3% so there is a risk that in the short term we may have “travelled and arrived” but on a medium term view I am happy to stick with this one as I like the commitment to creating shareholder value and think this is not yet fully reflected in the valuation. Given the size of the holding I may be tempted to trim on a further move up in the share price but for now; Happy Holder!

Another Oversold Financials Idea!

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Jjis

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