Standard Life Private Equity Trust — Withstanding the crisis in good shape so far

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Standard Life Private Equity Trust — Withstanding the crisis in good shape so far

Standard Life Private Equity Trust (SLPET) recently reported a rebound in its NAV upon receiving the underlying valuations from its general partners (GPs) as at end-June, which brought its 12-month NAV total return to end-September 2020 to a positive 4.0%. Following the upsizing of its credit facility to £200m and the £61.9m in distributions received (vs £78.6m of capital calls in the period), SLPET’s commitments coverage ratio was a solid 49% at end September 2020. This is not adjusted for the £15.3m expected deferred consideration and £67.1m of commitments it considers unlikely to be called.

Milosz Papst

Written by

Milosz Papst

Head of Content, Investment Trusts

Investment Companies

Standard Life Private Equity Trust

Withstanding the crisis in good shape so far

Investment trusts

4 November 2020

Price

309.5p

Market cap

£476m

NAV

£717m

NAV*

466.5p

Discount to NAV

33.7%

*Estimated NAV as at 30 September 2020.

Yield

4.2%

Ordinary shares in issue

153.7m

Code

SLPE

Primary exchange

LSE

AIC sector

Private Equity

Benchmark

None

Share price/discount performance

Three-year performance vs index

52-week high/low

401.0p

192.5p

466.5p

421.4p

*Including income.

Gearing

Gross*

0.0%

Net cash*

9.1%

*At 31 March 2020.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Standard Life Private Equity Trust is a research client of Edison Investment Research Limited

Standard Life Private Equity Trust (SLPET) recently reported a rebound in its NAV upon receiving the underlying valuations from its general partners (GPs) as at end-June, which brought its 12-month NAV total return to end-September 2020 to a positive 4.0%. Following the upsizing of its credit facility to £200m and the £61.9m in distributions received (vs £78.6m of capital calls in the period), SLPET’s commitments coverage ratio was a solid 49% at end September 2020. This is not adjusted for the £15.3m expected deferred consideration and £67.1m of commitments it considers unlikely to be called.

SLPET’s 2020 ytd NAV TR performance vs peers (in sterling terms)

Source: Morningstar, Edison Investment Research. Note: Based on latest available monthly NAV per share. *BMO Private Equity Trust based on end-June 2020, which is largely based on end-March 2020 valuations.

The market opportunity

Although private equity investments remain at risk of further downward revaluations (alongside public markets) if the current crisis continues for a prolonged period, there are a number of supportive factors that could limit the impact on private equity (PE). These include: 1) private equity backed companies benefit from better access to capital, 2) value creation expertise allows GPs to perform well through the cycle, 3) a high level of dry powder is available to pursue new investment opportunities at more attractive prices and 4) fund-raising remains strong for top GPs.

Why consider investing in SLPET?

Continuous focus on top-performing European private equity managers.

Experienced investment team with strong PE manager relationships.

Top 10 conviction-based fund investments make up c 50% of NAV, while the underlying portfolio is diversified with 400+ holdings across different regions, sectors and vintages.

Long-term NAV outperformance of European and global PE indices.

Discount wider than peers and 10-year average

Following the recent NAV update (with the portfolio now valued as at end-June 2020), SLPET’s discount stands at c 34% and is much wider than its 10-year average of c 23% and the current peer group average (c 27%). The company has so far paid three interim dividends of 3.3p each, translating into an annualised yield of 4.2%.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Standard Life Private Equity Trust’s objective is to achieve long-term total returns through investing in a diversified portfolio of leading private equity buyout funds and direct co-investments, a majority of which have a European focus, with exposure principally managed through the primary and secondary funds markets. No size or geographic restrictions apply to fund selection. There is currently no available benchmark that the board deems an appropriate measure of SLPET’s investment performance.

14 October 2020: Estimated NAV/share at end-September 2020: 466.5p.

30 September 2020: Estimated NAV/share at end-August 2020: 459.9p.

30 September 2020: Quarterly update at 30 June 2020, NAV/share: 473.9p.

24 September 2020: Increase of loan facility to £200m.

3 September 2020: Third interim dividend declared (3.3p per share).

14 August 2020: Estimated NAV/share at end-July 2020: 421.4p.

31 July 2020: Second interim dividend paid (3.3p per share).

Forthcoming

Capital structure

Fund details

AGM

March 2021

Ongoing charges

1.09% (FY20)*

Group

Aberdeen Standard Investments

Full year results

January 2021

Net cash

4.6% (est. as at end-September 2020)

Manager

SL Capital Partners

Year end

30 September

Annual mgmt fee

0.95% of NAV

Address

1 George Street,

Edinburgh EH2 2LL

Dividend paid

Jan, Apr, Jul, Oct

Performance fee

None

Launch date

29 May 2001

Trust life

Indefinite

Phone

0131 245 0055

Continuation vote

N/A

Loan facilities

£200m revolving credit facility

Website

www.slpet.co.uk

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Since FY17, the board’s intention has been to maintain the real value of the annual dividend. Four quarterly dividends of 3.3p are planned for FY20.

The board views buybacks as part of its strategy in relation to capital efficiency. SLPET has authority to repurchase 14.99% and allot 5.0% of its issued capital.

Shareholder base (as at 3 November 2020)

Portfolio exposure by maturity (as at 31 March 2020)

Top 10 underlying holdings

Company

Business

Location

Fund

Year invested

Portfolio weight %

31 March 2020

31 March 2019**

Action

Consumer staples

Netherlands

3i Venice SCSp

2011***, 2020****

3.7

6.1

TeamViewer

Information technology

Germany

Permira V

2014

2.1

0.8

Mademoiselle Desserts

Consumer staples

France

IK Fund VIII

2018***, 2019****

1.3

0.9

Handicare

Healthcare

Sweden

Nordic Capital VII

2010

1.2

0.8

CID Lines

Industrials

Belgium

IK Fund VII

2015

1.2

N/A

Colisee

Healthcare

France

IK Fund VIII

2017

1.1

N/A

R1 RCM

Healthcare

US

Towerbrook Investors IV

2016

1.1

1.1

Froneri

Consumer staples

UK

PAI SP SCSp

2019

1.0

N/A

Signature Foods

Consumer staples

Netherlands

IK Fund VII

2016

0.9

N/A

Benvic

Industrials

France

Investindustrial Growth

2018

0.9

N/A

Top 10 (at each date)

14.5

9.7

Source: SLPET, Edison Investment Research. Note: *Company forecast for FY20 disclosed in the interim report to March 2020. **N/A where not in end-March 2019 top 10. ***Fund investment. ****Co-investment.

Coverage ratio improving to 49%

Capital calls normalising after April, though increasing in September

After a spike in capital calls in March and April, when aggregate drawdowns reached £29.6m, the situation normalised between May and August. Although there was an increase in capital calls in September to £19.7m, we believe this may be rather due to GPs seeking additional capital for new investments rather than covering liquidity shortfall at portfolio companies. Based on our conversation with the investment manager, we understand that the September figure includes a £5.4m drawdown related to the Visma co-investment (see below), as well as certain call activity related to primary investments (for instance Hg Saturn). This has brought the year-to-date capital calls (to end-September 2020) to £78.6m (see Exhibit 4), which represents a run-rate that is c 20% above the 2017–19 average.

Since our last review note, SLPET made a new €25m commitment to Nordic Capital X in September 2020, which will be invested across Europe, with a mandate for global investments with a particular focus on healthcare, technology & payments and financial services businesses. The same month, the company also acquired in the secondary market an original commitment of €6.4m to Vitruvian III, which brought a further €2.6m of outstanding commitments. As a result, SLPET’s total commitments stood at £471.4m at end-September 2020 (of which £67.1m are considered by the manager as unlikely to be called).

SLPET retains its core focus on the mid-market buyout segment (fund size between €150m and €3bn), with a selective focus on 1) mid-sized growth companies with low leverage and providing exposure to emerging trends and technology, 2) lower mid-market buyout fund sizes between €150m and €1bn and 3) the large/mega buyout segment (>€3bn), where it selectively invests in core managers that scaled up from the mid-market.

At the same time, it continues to look for attractive co-investment opportunities and intends to maintain a co-investment pace of c 5% of NAV pa. In line with this approach, SLPET made a $7.0m co-investment alongside Hg (lead sponsor) into Visma, a provider of business-critical software to SMEs and the public sector in the Nordics and Benelux regions. This represents SLPET’s second co-investment this year (after £22.6m invested in Action in January 2020), bringing the year-to-date co-investment volume to c 4% of end-2019 NAV.

Distributions continuing year-to-date

SLPET has received meaningful distributions of £61.9m to end-September 2020 (vs a full year 2017–19 average of c £132m), including £15.7m in April and £12.5m in May. Moreover, Q320 distributions within SLPET’s portfolio turned out to be stronger than initially anticipated by management, with SLPET receiving c £18.4m during the quarter. We also note that SLPET should benefit from the IPO of Allegro, a leading Polish e-commerce platform held by the Sixth Cinven Fund, to which SLPET committed c £25m in 2016. Allegro’s share price went up more than 60% vs the IPO price on its first day of listing on 12 October.

The above year-to-date figures for capital calls and distributions exclude the Action deal in January 2020 as a consequence of which the holding became SLPET’s second co-investment (after Mademoiselle Desserts); see our previous update note for details.

Exhibit 4: Monthly drawdowns and distributions in 2020 (£m)

Source: SLPET, Edison Investment Research

Increase in the syndicated multi-credit facility

SLPET has further strengthened its liquidity position by the extension of its syndicated multi-credit facility to £200m from £100m announced in September 2020. The facility has an interest rate of Libor/Euribor + 1.625% (Libor/Euribor + 1.50% previously), rising to 2.0% depending on utilisation (1.70% previously) and a non-utilisation fee of 0.7% pa. The company paid an arrangement fee of 0.8% on the additional £100m. No changes to covenants or expiry date (which remains December 2024) were introduced and the loan facility remains undrawn.

One of the main rationales behind the facility upsizing was SLPET’s planned ramp-up of its direct co-investment portfolio and the resulting need for additional dry powder (given the lack of realisations from co-investments in the initial stage).

Solid coverage of outstanding commitments

As a consequence of the rebound in NAV, continued realisations coupled with more normalised capital calls (except for September), as well as the upsizing of the credit line to £200m, SLPET’s overcommitment ratio declined from 42% at end-March 2020 to 33% at end-September 2020 (close to the lower bound of the target range of 30–75%). The corresponding commitment coverage ratio (calculated as cash plus undrawn credit facility to outstanding commitments) stood at a comfortable 49% at end-September 2020. This does not account for a deferred consideration of £15.3m (from an investment sold in 2019), which SLPET expects to receive during the remainder of 2020. After adjusting for this as well as the £67.1m commitments, which are unlikely to be drawn (according to the investment manager), the coverage ratio improves further to 61%.

Exhibit 5: Available resources and outstanding commitments

Source: SLPET, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Standard Life Private Equity Trust and prepared and issued by Edison, in consideration of a fee payable by Standard Life Private Equity Trust. 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 2020 Edison Investment Research Limited (Edison).

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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

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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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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 Standard Life Private Equity Trust and prepared and issued by Edison, in consideration of a fee payable by Standard Life Private Equity Trust. 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 2020 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

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