When interest rates are low and capital is easy to access, investing in private companies is a sellers’ market. This has been true for some time and means that companies such as Intermediate Capital Group have to be selective in their investments. The volatile conditions in the last quarter of last year, though, made such investments a little easier, especially in America.
I have been following ICG for several years, convinced that it is an investment that the market has not fully understood in the past and that with further understanding will come greater appreciation. So it has transpired: the shares were 370p in October 2014 and topped out at 620p-odd last month before being caught out in the market falls this year.
This is inevitable because asset managers will see the value of those assets falling in turbulent markets and the sector as a whole has not been performing well. ICG is more complex in that it is shifting towards a complete asset management model, where the vast majority of funds come from third parties to be invested on their behalf, whereas its previous model meant much more self-investment.
One metric is the amount of those funds that bring in fee income, which typically needs them to mature for a while. This stands at 81 per cent, a figure that remains fairly stable as new funds are created.
The figures for the third quarter were positive enough, showing growth across the group. The picture in the fourth is less predictable because an unspecified number of investments are coming up for sale, a process ICG has no influence over and cannot even discuss.
That shift in the business model, and the ability to borrow more to self-invest, will allow the return on equity to rise to above 13 per cent in due course, a good rate of return. From an investment perspective, future earnings are increasingly reliable, even if the rate of asset growth may slow a little as ICG gets into less proven areas of investment.
The shares rose 2½p to 566½p , selling on 11 times’ earnings. They offer a yield of a bit above 4 per cent, while the market expects a special dividend of perhaps 60p a share when with the full-year figures in March. I would stick with this one.
€1.4bn 3rd party money raised in Q3
My advice Buy long term
Why The profits trajectory looks set, with fee income increasing, while the special returns to investors provide a steady income
Stock Spirits has to be the textbook case of what to be wary of in a stock market float. It sells drinks such as vodka in Poland, its biggest market, and elsewhere in eastern Europe and Italy, areas not much understood by City analysts. Management and private equity were heavy sellers when the company made its debut in late 2013.
The company then hit two unexpected buffers, a rise in taxes on alcohol in Poland and, last year, a fierce price war there. This had a competitor targeting supermarkets and other discount outlets rather than the corner shops that Stock Spirits has sold through and with which it had built a good relationship.
Meanwhile, an attempt to anglicise its brands to make them more suitable for the UK market and so get them on to supermarket shelves here came to little. In November there was a nasty profit warning over that price war.
Now the company has announced a root-and-branch review of the business, with possible disposals, Italy being an obvious option, so that management can focus on the core business. The shares, which were floated at 235p, rose 10¼p to 130p yesterday. On 14 times’ earnings, no reason to chase.
Fcst earnings for 2015 €50m-€54m
My advice Avoid for now
Why Too much uncertainty remains in Polish market
Greencore continues to outpace the market in chilled foods, sold in grocers, and sandwiches and other food-to-go. UK revenues in the first quarter of its financial year to Christmas were ahead by 7.9 per cent. In sandwiches, for example, growth was running at at least twice the 5 per cent seen in the market as a whole.
The company has a number of advantages. It started to invest in production at its Northampton plant several years ago, ahead of that market growth driven by general prosperity. Greencore has strong relationships with Marks & Spencer and the Co-op, both of which are growing fast in convenience foods.
It and other producers have had the benefit of deflation in raw material costs, something that will help to mitigate the effects of the minimum wage, too.
The American side of the business is less developed and was in a state of flux at the end of last year. Production has been shifted from Massachusetts to Rhode Island and Greencore has taken the opportunity to drop some less profitable lines in the process. Sales therefore, stripping out the effects of the strong dollar, were up by only 1.3 per cent, although growth this year should be running comfortably into double digits, as the company again has good links with two retailers growing quickly in this area, Starbucks and 7-Eleven.
The shares, up from about 280p at the end of September, added another 9½p to 362p. They sell on an expensive 18 times’ earnings but look worth it in the long term, given the prospects in the United States.
Revenue rise over quarter 7.2%
My advice Buy long term
Why Greencore seems able to continue to gain market share
And finally ...
A further sign that life is returning to M&A in oil and gas: Amerisur Resources, which still has a market capitalisation of more than £200 million and is sitting on $56 million in cash, is buying assets in Colombia for an outlay of less than $10 million, most of it in new shares. Platino Energy, the company it is buying, brings tax losses of $24 million, to be set against future income. Any oil produced will have access to Amerisur’s Ecuador-Colombia pipeline, which will cut transportation costs.
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