ICP - Should I stay or should I go now?

We have had an update today from Intermediate Capital Group (ICP) which describes itself as a specialist asset manager providing subordinated structured lending, private debt, leveraged credit and minority equity, managing €14.9bn of assets in third party funds and proprietary capital. This is one I suggested in May 2014 as looking like an attractive, over sold trading idea. You can read updates and the original note here or via the Categories menu to the right of the blog.

So with the shares closing in on my suggested 500 pence target level and with the update today it seems like a good time to revisit the shares. In terms of the update the highlights from the statement were as follows:

• Fundraising momentum continues with €3.1bn of third party money raised in the nine months to 31 December 2014. A full product pipeline is expected to result in very strong fundraising over the coming months
   
• New third party money raised in the quarter to 31 December 2014 totalled €1.4bn, with €0.2bn of realisations in older funds
   
• AUM increased by 8% in the quarter to 31 December 2014 to €14.9bn; third party fee earning AUM increased 12% to €10.8bn
   
• Investment pace for direct investment funds maintained in competitive market and healthy pipeline of investment opportunities across products
   
• Private equity secondaries business launched, as previously announced, with hire of specialist team and first investment

They say that they are benefiting from demand for alternative credit strategies "in an era of diminished returns for institutional investors". Therefore they see the current momentum in fund raising continuing. While on performance of their funds they say their mezzanine portfolio, including the weaker companies, remains stable and that their credit funds continue to perform either in line with, or ahead of their expectations.

Summary & Conclusion
ICP seems to be continuing to perform well in terms of its funds and their ability to attract new investors, although it seems that realisations will be lower in the second half. This is a mixed blessing insofar as it means fewer windfall gains but does make it easier for them to grow their book of business in total. This is a key focus for them as they seek to re-gear their balance sheet and increase their return on equity. Allied to this they continue to buy back shares as part of their planned £100 million share buy back programme. They have done £69 million and expect to complete the programme by the end of their financial year to 31st March 2015 so this should continue to support the share price.

Talking of which as you can see from the graph at the end, the shares have struggled since May but have done well since the low in the market in October 2014 when the Japanese central bank came out with their latest surprise QE move. This also suggests to me that they may also be seen as a potential beneficiary from the trickle down from the recently announced Euro QE. This is especially so as Europe makes up a fair chunk of their portfolio so it seems their business and investments could continue to prosper against that background.

So with the recent move in the share price having just about achieved my target price and left them looking over bought in the short term, although this recent move has also been supported by some earnings upgrades in recent months too. Technically 500 pence also seems like a potentially strong resistance level from previous peaks in 2013, although I note the all time highs were nearer 750 pence back in the boom days of 2007. They are however currently trading above their 20, 50 and 200 day moving averages which suggests they are in a bullish trend at the moment, but worth watching the 20 day for any signs of a downturn.

On the fundamentals, if we assume say around 34 pence of earnings for this year plus a forecast 22 pence dividend, this leaves them on nearly 15x and a decent 4.4% yield for the year to 31st March 2015. Looking ahead to next year with growth forecast these metrics could move to a fair looking 13.2x and 4.8%. On the CI Score it comes in around 71 reflecting value, growth and quality scores but the financial security is low reflecting their gearing and relatively low interest cover, but that's the nature of their business but worth bearing in mind given the difficulties they saw in 2008.

Thus on balance if you bought it for a trade I wouldn't put you off booking your 25 to 30% profits here and moving onto the next idea, especially if you are nervous about financial markets at this juncture. However as an investor if you are more relaxed about the outlook for markets and think they might progress from here then this one may be worth holding onto as it is a likely beneficiary of that trend and this could lead to a re-rating and break out of the share price, plus more dividends to come.

Still as I always say you pay your money and take your choice but hopefully you did choose to make some money on this one and I'll leave it up to you if should stay or you should go now or take the money and run - I do believe those are some cool tunes...