Electra Private Equity — The realisation strategy – step by step

Electra Private Equity — The realisation strategy – step by step

On 15 April, Electra Private Equity (ELTA) announced the disposal of Sentinel – one of the company’s three remaining operating businesses – for £22.2m (58.1p per share), £11.3m higher than the asset’s carrying value on the balance sheet as at 30 September 2021. ELTA has been following a realisation strategy since October 2016, when it had a market cap of c £1.7bn, and has since returned c £2bn to shareholders. Since our 16 December 2020 initiation note, the shares have appreciated from a 22% discount to NAV to currently trading at a 4.1% premium.

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Electra Private Equity

The realisation strategy – step by step

Investment trusts
Special situations – private equity

16 April 2021

Price

368.0p

Market cap

£140.9m

AUM

£134.9m

NAV*

353.4p

Premium to NAV

4.1%

*Including income. As at 14 April 2021.

Yield

0.0%

Ordinary shares in issue

38.3m

Code

ELTA

Primary exchange

LSE

AIC sector

Private Equity

52-week high/low*

377.0p

125.0p

372.5p

353.4p

*A-shares. **Including income.

Gearing

Net cash at 15 April 2021

£23.5m

Fund objective

Electra Private Equity’s (ELTA) investment objective is to follow a realisation strategy, which aims to crystallise value for shareholders through balancing the timing of returning cash to shareholders with maximisation of value. Following the realisation of Sentinel, ELTA intends to retain the cash received pending further asset realisations and confirmation of future distributions to shareholders in due course.

Analysts

Victoria Chernykh

+44(0)20 3077 5700

Richard Finch

+44(0)20 3077 5700

Electra Private Equity is a research client of Edison Investment Research Limited

On 15 April, Electra Private Equity (ELTA) announced the disposal of Sentinel – one of the company’s three remaining operating businesses – for £22.2m (58.1p per share), £11.3m higher than the asset’s carrying value on the balance sheet as at 30 September 2021. ELTA has been following a realisation strategy since October 2016, when it had a market cap of c £1.7bn, and has since returned c £2bn to shareholders. Since our 16 December 2020 initiation note, the shares have appreciated from a 22% discount to NAV to currently trading at a 4.1% premium.

ELTA’s NAV upside potential (from base case*)

Source: ELTA, Edison Investment Research, at 9 December 2020. Note: *Based on ELTA’s management estimates. The base case is the current NAV at 30 September 2020. Also please see our initiation note on ELTA.

Key takeaways

Sentinel’s proceeds of £22.2m were in line with our upside of c £20m, built on applying peer and sector multiples to management’s pro forma business scenarios (see chart above and our initiation note).

ELTA management believes that TGI Fridays’ business with 87 sites (32 currently operating for outside dining and the rest due to open according to government guidance) is well positioned to emerge from lockdown strongly, with a strong pipeline of additional sites due to open in 2021 and beyond.

Hotter Q121 EBITDA is up £0.9m on Q120, despite its shops being closed throughout the quarter, on track to deliver more than £6–7m EBITDA for FY21.

With cash increased to £23.5m (17% of NAV) from £1.3m (1% of NAV) at end September 2020, ELTA is on track with its realisation programme (see Exhibit 1 on page 2).

ELTA’s NAV reconciliation at 15 April 2021

Exhibit 1: NAV reconciliation with two key investments: TGI Fridays and Hotter Shoes (post Sentinel’s disposal)

Investment

Sector

Projected % of UK revenue* for 2021

Year of investment

Purchase price (£m)

Unrealised value (£m)

Value (% of NAV)

Cum. value (% of NAV)

TGI Fridays

Consumer discretionary

100

2015

99

106.6

79%

79%

Hotter

Consumer discretionary

90

2014

84

5.8

4%

83%

 

112.4

83%

 

Other portfolio core assets

3.9

3%

86%

Other portfolio non-core assets

1.4

1%

87%

Total portfolio

183

117.7

0.9

Liquid assets

5.6

4%

Cash

23.5

17%

Other non-core assets & liabilities

(0.2)

Net asset value (NAV)

135.3

100%

Source: Electra Private Equity as at 30 September 2020, Edison Investment Research at 15 April 2021. Note: *Company projections.

A further update will be provided by the company on 21 May with publication of ELTA's interim results for the period to 31 March.

General disclaimer and copyright

This report has been commissioned by Electra Private Equity and prepared and issued by Edison, in consideration of a fee payable by Electra Private Equity. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Electra Private Equity and prepared and issued by Edison, in consideration of a fee payable by Electra Private Equity. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Esker — Q1 order intake supports more confident outlook

In Q121 Esker reported record revenue (+10% y-o-y) and 45% growth in bookings. Management has slightly increased its outlook for revenue growth in FY21 and more explicitly guided on profitability. We maintain our conservative forecasts, which are at the lower end of guidance.

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