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Currency in EUR
Last close As at 30/03/2023
EUR9.24
▲ 0.04 (0.43%)
Market capitalisation
EUR643m
Research: Investment Companies
Princess Private Equity Holding’s (PEY) NAV total return (TR) reached 19.4% in FY21 in euro terms, supported by exits (most notably from GlobalLogic) and unrealised revaluation gains across most of its top 10 portfolio holdings. Amid strong realisation activity (which outpaced its new private equity investments in FY21), PEY temporarily invested part of its dry powder in senior loans in H221 to mitigate cash drag. Having said that, PEY’s manager is confident in its investment pipeline, which currently includes c 50 live investment opportunities with a volume of over US$30bn in the near term (c six months). The company offers an attractive dividend yield of 5.3% (in line with its policy of distributing 5% of opening NAV).
Princess Private Equity Holding |
Seeking to deploy excess liquidity |
Investment trusts |
7 March 2022 |
Analysts
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Princess Private Equity Holding’s (PEY) NAV total return (TR) reached 19.4% in FY21 in euro terms, supported by exits (most notably from GlobalLogic) and unrealised revaluation gains across most of its top 10 portfolio holdings. Amid strong realisation activity (which outpaced its new private equity investments in FY21), PEY temporarily invested part of its dry powder in senior loans in H221 to mitigate cash drag. Having said that, PEY’s manager is confident in its investment pipeline, which currently includes c 50 live investment opportunities with a volume of over US$30bn in the near term (c six months). The company offers an attractive dividend yield of 5.3% (in line with its policy of distributing 5% of opening NAV).
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PEY three-year total return performance against indices (in euro terms) |
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Source: Refinitiv, Edison Investment Research |
FY21 performance driven by exits and revaluations
An important net asset value (NAV) contributor in FY21 was PEY’s exit from GlobalLogic, completed in Q121 at a multiple on invested capital (MOIC) of 5.3x and an uplift of 45% (or c €48m) to last carrying value (see our previous note for details). Furthermore, PEY saw a €53.2m aggregate upward revaluation of its top 10 portfolio holdings, with the only negative contribution coming from Fermaca, a gas infrastructure operator in Mexico (c 2.4% of PEY’s NAV at end-FY21). PEY posted a share price total return of 29.3% in FY21, aided by the discount to NAV narrowing to 5% at end-December 2021 from 12% a year earlier. The discount has since widened to c 17% at 4 March 2022, somewhat wider than the c 11% average over the three years to end-February 2020, before the COVID-19 pandemic.
NAV TR in sterling below peers
PEY’s one-, three- and five-year NAV TR to end-2021 in sterling terms is below the peer group average (see Exhibit 1 on page 2). This is partly attributable to the depreciation of the euro against sterling over these periods (by 8%, 7% and 2%, respectively), given that PEY hedges its portfolio into euro (its euro exposure after hedging was 92% at end-2021). Moreover, PEY’s H221 performance was also affected by a cash drag stemming from exit proceeds. PEY’s one-year NAV TR in euro terms was also below the returns of the MSCI World and LPX Direct Listed Private Equity indices of c 31% and 35%, respectively. However, we note that its three- and five-year returns are more aligned with these indices. PEY’s 2021 total dividend of €0.67 per share implies a yield of 5.3%, notably higher than the 2.9% average of its peers.
Exhibit 1: Listed private equity investment companies peer group, at 4 March 2022* in sterling terms
% unless stated |
Country focus |
Market cap (£m) |
NAV TR 1 year |
NAV TR 3 years |
NAV TR 5 years |
Latest discount |
Ongoing Charge |
Perform. Fee |
Net gearing |
Dividend yield (%) |
|
Princess Private Equity |
Global |
719.6 |
11.0 |
48.9 |
84.8 |
(17.1) |
1.8 |
Yes |
100 |
5.3 |
|
Apax Global Alpha |
Global |
943.9 |
21.3 |
71.5 |
97.9 |
(24.3) |
1.3 |
Yes |
100 |
5.9 |
|
BMO Private Equity Trust |
Global |
326.8 |
56.1 |
77.8 |
119.4 |
(24.8) |
1.3 |
Yes |
100 |
4.2 |
|
Deutsche Beteiligungs |
Europe |
471.7 |
17.1 |
40.1 |
77.4 |
(17.6) |
-** |
Yes |
100 |
2.6 |
|
HarbourVest Global Priv Equity |
Global |
1,796.9 |
50.6 |
92.5 |
138.9 |
(35.2) |
1.0 |
Yes |
100 |
0.0 |
|
HgCapital Trust |
UK |
1,725.5 |
43.9 |
115.6 |
199.4 |
(14.0) |
1.4 |
Yes |
100 |
1.3 |
|
ICG Enterprise Trust |
UK |
763.3 |
33.2 |
64.7 |
119.7 |
(31.6) |
1.5 |
Yes |
100 |
2.4 |
|
NB Private Equity Partners |
Global |
638.9 |
42.7 |
78.8 |
105.8 |
(33.4) |
2.0 |
Yes |
116 |
4.5 |
|
Oakley Capital Investments |
Europe |
666.2 |
34.7 |
98.2 |
147.4 |
(30.7) |
2.5 |
Yes |
100 |
1.2 |
|
Pantheon International |
Global |
1,510.5 |
34.3 |
58.1 |
100.5 |
(32.1) |
1.2 |
Yes |
100 |
0.0 |
|
Standard Life Private Equity Trust |
Europe |
673.4 |
37.4 |
67.6 |
120.3 |
(32.8) |
1.1 |
No |
100 |
3.1 |
|
Symphony International |
APAC |
140.8 |
18.2 |
(21.0) |
(23.5) |
(51.3) |
2.4 |
No |
101 |
6.6 |
|
Peer group average |
878.0 |
35.4 |
67.6 |
109.4 |
(29.8) |
1.6*** |
- |
102 |
2.9 |
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PEY rank in group (12 funds) |
6 |
12 |
10 |
10 |
2 |
4 |
- |
3 |
3 |
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Source: Morningstar, Refinitiv, Edison Investment Research. Note: *12-month performance based on end-December 2021 or latest available NAV (end-October for ICG Enterprise Trust; end-September for Apax Global Alpha, BMO Private Equity Trust, HgCapital Trust and Symphony International). **Deutsche Beteiligungs is self-managed, and its management fee income charged on third-party capital exceeds its ongoing charges. ***Excluding Deutsche Beteiligungs. TR = total return. All returns expressed in sterling terms.
Investments
We calculate that PEY invested c €224m in private equity holdings in FY21, or c 24% of opening NAV (versus c 7% in FY20 and 15% on average in 2015–19). Moreover, it made a €135m temporary investment in floating rate senior loans in H221. Management highlights that this allocation is aimed at reducing cash drag and the capital will be gradually redeployed in direct private equity investments (see more details in our previous update note). In Q421 alone, PEY invested c €117m in private equity holdings, which include deals discussed in our last update note, as well as a c €24m investment in DiversiTech, a manufacturer of equipment pads and air conditioning condenser pads, and c €11m in PCI Pharma Services, a global provider of outsourced pharmaceutical services offering a full-service integrated platform throughout the pharmaceutical supply chain. PEY drew down €25m from its €80m credit line in Q421, which it plans to repay after receiving the proceeds of recent realisations. In January 2022, PEY invested €17.6m in Pharmathen, a contract development and manufacturing organisation focused on advanced drug delivery technologies for complex generic pharma products. Management expects investment activity to increase in the coming months and for PEY to become close to fully invested in H222. PEY’s near-term pipeline (c six months) comprises 50 live investment opportunities with a volume of more than US$30bn. Its focus remains on resilient businesses from the services (16 live investment opportunities), goods and products (10), technology (12) and health and life (12) sectors.
Realisations
Realisations were at a record-high €470m in FY21, even if we account for the fact that part of the exit proceeds were reinvested in the same companies (eg Foncia, ISP). PEY’s exits stood at c €96m in Q421 alone, which primarily covers the partial disposal of Foncia (c €49m) and full exits from Pacific Bells (c €17m), Straive (c €16m) and Hortifruti (c €10m). Following increased realisation activity, PEY’s portfolio concentration, as measured by the share of top 10 holdings in its NAV, declined to c 33% at end-2021 from 49% at end-2020. The manager expects 2022 to be active in terms of exits as well, although perhaps not as active as 2021 when it executed some disposals initially planned for 2020. We note that while PEY’s portfolio is broadly diversified by investment year, c 70% of its portfolio at end-FY21 had a vintage of 2018 or earlier, suggesting that a significant part of PEY’s portfolio may be ripe for exiting. Post quarter end, PEY announced its exit from Voyage Care, a provider of specialist care in the UK. The transaction values PEY’s stake at c £15.1m, compared to the latest carrying value before the deal was announced of £12.2m at 30 November 2021 (implying a c 24% uplift).
Performance in Q421
NAV TR was -0.3% in Q421, affected by the write-down of Fermaca (€8.9m in Q421) and KinderCare (€11.6m). The manager revised its mid-term outlook for Fermaca after the company faced delays in government permits and construction. As we highlighted in our last update note, KinderCare Education announced its plans to go public in November 2021 but decided to postpone its listing plans indefinitely in Q421, citing regulatory delays. Consequently, the company revised the previous write-up which it had made based on the expected IPO price. These write downs were only partly offset by write ups on other major portfolio holdings, most notably a €6.4m (or c 15%) revaluation of SRS Distribution (c 4.1% of NAV at end-FY21), a US-based manufacturer of roofing products, which has benefited from favourable market conditions, according to the manager.
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Investment Companies
Investment Companies
Research: Metals & Mining
On 24 January, Endeavour provided a production and cost update for its mines in Q4 and FY21. Production in Q4 amounted to 398koz, up 4% relative to Q321, while all-in sustaining costs (AISC) remained stable at c US$900/oz. Production in FY21 reached a record of 1,536koz, beating the annual guidance of 1,365–1,495koz for the ninth year in succession at an AISC of c US$880/oz (cf guidance of US$850–900/oz). As a consequence, we have upgraded our estimate of adjusted net earnings attributable to shareholders for the quarter by 6.9% and for the year by 1.2%. We have also increased our forecast for adjusted net earnings attributable to shareholders for FY22 by 8.7%.
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