Intermediate Capital: Update 18th December 2013: Bought back in!

Intermediate Capital (419p and 2.7% of JIC; FTSE 250 Index). I have this morning, bought back in to Intermediate Capital, one of the largest independent mezzanine providers in the world with investment portfolios in Europe, Asia Pacific and the US. It provides mezzanine finance, leveraged credit and minority equity, managing around €12.0 billion of assets from third party investors and its own balance sheet.

(Mezzanine finance is a form of debt that represents a claim on a company's assets which is above only that of the common shares. In the event of default, the mezzanine financing is only repaid after all senior debt obligations have been satisfied. In compensation for the increased risk, mezzanine debt holders require a higher return for their investment than secured or more senior lenders.)

Long term followers of JohnsInvestmentChronicle will know that I am a fan of the company, which I believe is extremely well managed and has an excellent track record , but I sold out back in August booking a decent profit. The shares have since drifted back more than 10% and are on a prospective yield of just over 5%.
Results for the six months ending 30th September 2013, issued last month, were I thought, pretty good. Fund raising had been strong, with €2.4bn committed to its third party funds and it anticipated further growth in the second half. This should help mitigate the fall in assets under management, which fell by 6% to €12.1bn in the first half, due to a strong period of balance sheet realisations of previous investments. Encouragingly it says that it has a strong pipeline of new investment opportunities, so should be able to put the funds raised to good use.

Earnings per share came in at 33.7p compared to 10.7p the previous year but this figure is a bit of a moving feast, as it depends to a great extent on the timing of realisations of investments in the Investment Company. The dividend was increased by 4.8% to 6.6p and is on course for the consensus forecast of 21.3p for the full year, putting the shares on a prospective yield of 5.1%, which I think looks attractive given the company’s prospects. (See transactions)

Intermediate Capital (468p and 0.0% of JIC Portfolio) I have this morning sold the remaining shares that I hold in Intermediate Capital having reduced the holding to 3% on 22nd July. The shares closed yesterday below the 21 day closing low and look as though they may be “rolling over”, (see chart above). I have a good profit to book and the shares are no longer compellingly cheap. Looking back at my notes, when I bought the holding last October at 299p, it was on a prospective yield of 6.5% compared to the current 4.4%.

It will do the portfolio no harm to have a little cash available to take advantage of any opportunities that might arise. (See transactions)

www.JohnsInvestmentChronicle.com

Intermediate Capital (485p and 5.6% of JIC); The main points form its trading statement this morning are; it has been successful raising new funds, with new third party money raised during the quarter to 30th June, of €560m with a further €274 raised during July. It had a strong quarter of realisations with £433m of cash inflow, which resulted in assets under management falling by 3% to €12.5bn.

During the quarter it closed its Longbow III mezzanine debt fund at the maximum permitted €700m. Its direct lending strategy, Senior Debt Partners, has closed a further €274mtaking the total to €391m and it says it is confident of reaching its €1bn target.

Performance in the Investment Company’s portfolio is said to be resilient with a solid pipeline of investment opportunities.

Conclusion; overall this was a broadly encouraging update. It is valued at 9.1x March 2014 forecasts and is on a projected yield of 4.4%. The share price has been very strong, nearly doubling over the last 12 months but whilst the shares yield over 4% I am happy to hold on to what is, I believe, an extremely well managed company.

www.JohnsInvestmentChronicle.com

Intermediate Capital (423p and 5.0% of JIC). The shares have been weak and are off some 15% since the share price peaked on 22nd May, the day of its full year results. Yesterday I believe, one broker went neutral on the stock but with a raised target price of 465p. It went ex its final dividend of 13.7p this morning and at 423p is now, given a consensus dividend forecast for the current year of 21.2p, on a prospective yield of 5.0%. The business seems to be performing well, with the Company's optimism at the results of a pickup in realisations of investments being backed up by last week's announcement of two realisations in its top twenty investments.

I have today increased the holding to 5.0% of the JIC Portfolio (See transactions)

Intermediate Capital (434p and 3.4% of JIC) has announced the sale of its stake in Allflex Holdings for $181m and a huge gain of $167m. The gain in itself is good news but more importantly this is hopefully an indication that the market for profitable disposals is improving! The stock has moved up 3.3% on this news today but is still on a prospective yield of 4.5%. Happy Holder