Still upside risk at Intermediate Capital

Intermediate Capital Group's (ICP) meteoric rise over the past year has had some investors looking nervously over their shoulders. However, today’s forecast-busting half-year results from the specialist asset manager not only provided reassurance, they acted as a trigger for fresh gains as its shares surged as much as 11% to reclaim their recent high above the £10 mark.

The FTSE 250 stock has been on an upward path ever since 2009, as it benefits from a gap in the market caused by mainstream banks pulling back from lending to smaller and medium-sized companies.

This has led to a rise in direct lending, where ICG has acted as a differentiator by offering a broader range of finance solutions to mid-market companies.

Half-year results today showed that total assets under management lifted 14% in the six months to September 30 to reach €27.2 billion (£24.2 billion). Out of the €5.7 billion (£5.1 billion) of new money raised, the bulk was for its Senior Debt Partners strategy, with €4.2 billion (£3.7 billion) in the period.

Chief executive Benoit Durteste said the success of Senior Debt Partners made ICG one of the few asset managers with the “scale, reputation and track record to take full advantage of the attractive European direct lending market”.

Alternative asset classes continue to be attractive to institutional investors for their enhanced returns and diversification opportunities. But ICG said this was also attracting increased competition as new entrants join the market.

JP Morgan Cazenove said the fact that ICG’s fund management profits of £44.3 million now exceeded those of its investment company, meant that ICG should be viewed favourably alongside other fund management businesses.

They added that ICG justified a premium to the rest of the sector due to its stronger asset raising and longer duration of assets.

A year ago, JP Morgan Cazenove chose ICG as one of its top picks for 2017 when the price stood at around 682p.

Today, the bank lifted its price target from 950p to 1,100p, cheered by a 20% jump in the half-year dividend to 9p a share. With group adjusted pre-tax profit of £81 million beating its estimate of £77 million, JPM raises its earnings per share (EPS) target by 6% for both 2018 and 2019 to 58.9p and 61.8p respectively.

At 1,017p, ICP shares trade on 17 times estimates for EPS next year, dropping to 16.4 times for 2019. JPM values the fund management part of the business based on a 20 times price/earnings (PE) multiple. Analysts at Liberum still see “upside risk”.

This rating is not off-putting, and business is thriving. However, after such an incredible run, cautious investors will likely watch this one and buy the dips.

ICG was founded back in 1989 by six entrepreneurs when company refinancings were starting to become more complex and they saw an emerging asset class — mezzanine, a layer of debt refinancing between equity and fixed income.

ICG listed on the London Stock Exchange in 1994 as ticker symbol ‘ICP’, to become known by brokers as “frozen peas” (ICP – icy peas).

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.