Canaccord hikes target for Intermediate Capital Group, spies bottom in fund flows

Analysts at Canaccord Genuity hiked their target price for shares of Intermediate Capital Group, arguing that investors' focus on losses on the Investment Co. side of the business.

That unit posted £98.9m of red ink for the 2020 financial year on the back of £152.4m in unrealised losses.

But the greater value and growing bit of the firm was its fund management arm, analysts Justin Bates and Portia Patel said.

"In FY20, 50% of management fees were earned on invested capital and 50% on committed, providing stability through the cycle and irrespective of market volatility," they explained.

The tailwind from low interest rates around the world was likely to continue funneling fund flows towards the alternative asset manager, they added.

Fund flows were seen picking up from €4.5bn in the 2021 financial year, to €6.2bn and €9.0bn over the subsequent two years.

In parallel, they estimated a 16% compound annual rate of growth for the company's profit before tax between 2021-23.

Canaccord assigned a valuation multiple of 1.0 times ICG's FY 2020 net asset value due to its IC unit.

However, the multiple for the funds side of the firm was set at 18.0 times to reflect the "superior" visibility around its fees for a 30% premium against the asset management sector although that remained a 20% discount against rival Partners Group.

Hence the increase in their target price from 1,244.0p to 1,716.0p, while the recommendation was kept at 'buy'.