Princess Private Equity Holding — Planning to resume dividend payments in June

Princess Private Equity Holding (LSE: PEY)

Last close As at 22/06/2024

EUR11.15

0.00 (0.00%)

Market capitalisation

EUR772m

More on this equity

Research: Investment Companies

Princess Private Equity Holding — Planning to resume dividend payments in June

During its Q422 results release, Princess Private Equity (PEY) announced the discontinuation of its foreign exchange (FX) hedging strategy from 1 April 2023 and an upsizing of its credit facility from €110m to €140m in response to the holding-level liquidity constraints it faced in late 2022. We believe investors should welcome these measures, as they facilitate PEY’s balance sheet management while allowing it to stay close to fully invested (investment level at 101.3% at end-January 2023) and to resume its dividend payments in line with the policy of paying out 5% of opening net asset value (NAV).

Milosz Papst

Written by

Milosz Papst

Director, Financials

Investment Companies

Princess Private Equity

Planning to resume dividend payments in June

Investment trusts
Private Equity

3 March 2023

Price Ord.

€9.84

Price (PEYS)

855p

Market cap

€680m

NAV*

€1,018m

NAV per share*

€14.72

Discount to NAV

33.2%

Yield (LTM)

3.9%

Shares in issue

69.2m

Code (EUR/GBP quote)

PEY/PEYS

Primary exchange

LSE

AIC sector

Private equity

52-week high/low

€13.20

€7.80

€15.26

€13.76

*As at end-January 2023

Gearing

Net gearing at end-Jan 2023

0.0%

Fund objective

Princess Private Equity Holding is an investment holding company domiciled in Guernsey that invests in private equity and has a minor private debt position. Its portfolio consists mostly of direct investments but may also include primary and secondary fund investments. It aims to provide shareholders with long-term capital growth and an attractive dividend yield.

Bull points

Focus on building resiliency in portfolio companies and on transformative trends; high exposure to resilient sectors (eg healthcare).

Discontinuation of FX hedging and upsizing of credit facility improves balance sheet flexibility.

Available at a wide discount to NAV.

Bear points

A persistently weak exit environment may further impact PEY’s new investment activity and liquidity.

NAV TR somewhat below peer average in recent years.

Suspension of the second interim dividend last year weighing on sentiment.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Michal Mordel

+44 (0)20 3077 5700

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

During its Q422 results release, Princess Private Equity (PEY) announced the discontinuation of its foreign exchange (FX) hedging strategy from 1 April 2023 and an upsizing of its credit facility from €110m to €140m in response to the holding-level liquidity constraints it faced in late 2022. We believe investors should welcome these measures, as they facilitate PEY’s balance sheet management while allowing it to stay close to fully invested (investment level at 101.3% at end-January 2023) and to resume its dividend payments in line with the policy of paying out 5% of opening net asset value (NAV).

Contribution of PEY’s largest holdings to portfolio revaluation

Source: Company data. Note: Share in PEY’s end-2022 NAV shown in brackets.

Abandoning FX hedges and upsizing its credit line

The discontinuation of FX hedging of its portfolio aligns PEY’s practices with its LSE- listed private equity (PE) peers. The hedging contracts it currently has in place are all short duration and will be closed out as of 31 March 2023. This move will reduce the cash flow volatility at holding level by removing the cash inflows/outflows from hedges (even if at the expense of additional NAV volatility through unhedged FX changes). PEY had 60m outflows from FX hedges in 9M22 (due to a strong US dollar, exposure to which represented 45% of PEY’s portfolio at end-2022). This was partly reverted in Q422 as the euro regained some of the earlier losses against the US dollar, resulting in 30m inflows from hedges to the company.

Moreover, PEY decided to upsize its senior revolving credit facility with Lloyds Bank Corporate Markets from 110m to 140m, with its maturity extended from 14 December 2024 to 13 December 2026. Key terms, such as a loan-to-value covenant at 25% and a minimum NAV of 500m, remain unchanged. We suggested the possibility of an upsizing of the credit facility in our previous update note given its size in relation to PEY’s portfolio value (13.6% following the upsizing) was below peer average of c 18%. The 110m line remained undrawn at end-2022.

Wide discount to NAV translates into a 7.3% yield

Given PEY’s current 33% discount to last reported NAV (versus 10-year average of c 17%), the next interim dividend payment (expected in June at €0.36 per share) implies an attractive annualised yield of 7.3%.

Investments and realisations slowing down in Q422

PEY’s investment volumes were quite high in 9M22 at 134.3m (c 13% of opening NAV versus 2017–2021 annual average at c 15%) but the company reduced its investment activity markedly in Q422 to only 22.4m in Q422 (most of which came from the reinvestment in USIC) to preserve holding-level liquidity. New investments were focused primarily on the healthcare and IT sectors (see our previous notes for details), with notable exceptions being Climeworks (a designer, developer and operator of direct air capture plants) and Foundation Risk Partners (an independent insurance broker focused on B2B segments in commercial property and casualty as well as employee benefits).

PEY’s distributions excluding redemptions of senior loans (in which PEY had temporarily invested its excess liquidity in late 2021) stood at 109.2m in FY22 (visibly below the 462.5m in FY21), with Q422 distributions (net of the USIC re-investment) at a modest 31.1m.

PEY’s manager highlighted that M&A markets remain muted due to still limited availability of debt (see our above-mentioned sector notes for details) and persisting divergence in sellers’ and buyers’ price expectations. Because of this and the fact that PEY is now fully invested (while its undrawn credit facility will primarily be used for short-term bridging of investments and realisations), the manager expects both new investments and distributions to remain moderate in the coming quarters.

Board changes

PEY also announced that Richard Battey is stepping down from the board and the role of chairman by not standing for re-election (he has been PEY’s chairman since August 2018 and a board member for 13 years). Subject to the members’ re-election, Steve Le Page will assume the role of chairman from the date of the next AGM in June 2023. All other board members will stand for re-election.

General disclaimer and copyright

This report has been commissioned by Princess Private Equity and prepared and issued by Edison, in consideration of a fee payable by Princess Private Equity. Edison Investment Research standard fees are £60,000 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.

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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 2023 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.

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United Kingdom

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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.

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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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Princess Private Equity and prepared and issued by Edison, in consideration of a fee payable by Princess Private Equity. Edison Investment Research standard fees are £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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