Private Equity Brokers Note: Mithras Investment Trust
Winterflood Securities has issued a research note on Mithras Investment Trust (LON:MTH) following the release of interim results.
MTH is a fund-of-funds private equity investor with one of the lowest on-going charges in the sector. Of course as with all fund-of-funds structures in Private Equity, much higher charges are drawn by the funds the trust invests in, with 2% management fee and 20% outperformance fee or share of profits being the norm.
MTH is also one of the smallest with total assets of under £50 million. This makes is less likely they’ll attract investment from institutions and from larger wealth management firms, though Legal & General has a large stake of slightly less than 35%.
Result highlights include a NAV (net asset value) of 148 pence, as of the end of June, which is up 3.4% from the end of 2012. The trusts discount has narrowed from 21% at the start of the year, helped by them buying back their own shares using cash received from realisations. A total £6.9m was returned to shareholders via a tender offer, made more attractive by being issued at a higher share price than the prevailing one (143.0511 pence). This meant shareholders were being paid more for selling their shares than the market was willing to pay.
MTH has a stated policy of returning money to shareholders this way, as and when money comes in.
At the end of June the trust had surplus cash at a company level of £6.7 million (18.6p per share), compared with £12.2 million six months earlier, despite a strong period for distributions. This reflects the tender offer mentioned above and a dividend payment (£0.4m) and new investments (£1.7m) from prior commitments.
The trusts outstanding commitments totalled £7m at the end of the period of which £5.2m is expected to be drawn. The trust therefore has additional surplus cash of £1.5m.
The majority of the five underlying funds in the portfolio are almost fully invested with the exceptions being CVC Europe V (75% drawn) and Doughty Hanson V(79%).
MTH received distributions as a result of disposals and/or refinancing of £3.6m during the period. These included payments from their holding in Oaktree and CVC. Proceeds from the sale of Vue Cinemas by Doughty Hanson, are due to be received later this month.
The level of investments was lower during the period but included IPH, ADB Airfield Solutions and R&R Ice Cream, the UK’s second largest ice cream maker for PAI’s V fund.
Manager Bernie Boylan believes prospects for realisations during the remainder of the year are strong, with a number of potential sales and refinancings.
Mithras’ returned a very substantial 18.6 pence per share to shareholders recently. This is a manifestation of the policy they enacted in January 2009 to return surplus cash to shareholders from sales/realisations. Other than existing commitments MTH will make no new investments, so it is being run till the expiration of its existing commitments and their eventual sale.
Eventually this may result in the trust becoming too shall to support its overheads and a sale of merger might then be looked at.
In the meantime share holders can look forward to further substantial returns. It is Winterfloods view that all things being equal, they expect a further tender offer is possible later this year or early in 2014. The manager estimates that half of the portfolio could be realised over the next 18 months.
Also, although the discount has narrowed recently, it reflects a valuation as at the end of March which Winterflood expects will now be higher. If so the discount will be more than currently indicated.
Mithras is a corporate broking client of Winterflood Securities.
Mithras Investment Trust Investment Trust Metrics
|Share Price||125 pence||Dividend Yield||0.8%||5 year dividend growth p.a. = -12%|
|Total Assets/Market Cap (Million)||£46m / £39m||Gearing||0% (has net cash)||Managed by Bernie Boylan|
|AIC Sector/Date Founded||22/02/1994||On-going charge & how much of the charge is the managers fee||1.6% 0.80%||Managers direct holding: Owns 0.2%|
|Discount to NAV||-16%||12 Month Average Discount to NAV||-20%||Financial year end: 31/12/2013|
|Total Return 1, 3, 5 & 10 years||+24%||+34%||+33%||+267%|
|Private Equity Sector Total Return 1, 3, 5 & 10 years||+30%||+85%||+16%||+140%|
|LPX Europe Benchmark Total Return 1, 3, 5 & 10 years||+40%||+52%||+16%||+142%|