Stock Spotlight: Analysts bullish on Intermediate Capital Group as it rejoins FTSE 100

The private equity investment firm was promoted to the UK large-cap index at the beginning of December, replacing Hargreaves Lansdown, which fell into the FTSE 250.

This is the second time the PE firm has joined the index, having first risen to it on 23 March 2020, before dropping back into the FTSE 250 on 19 December 2022.

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Analysts were reassured by ICG’s FTSE upgrade, with several reiterating their existing ‘Buy’ recommendations.

Justin Bates, head of research at Canaccord Genuity, rated the stock a ‘Buy’ back in January this year and has maintained the positive recommendation almost 12 months later.

ICG’s share price has risen 40.9% year-to-date, according to data from Morningstar Direct, helping to drive it into the FTSE 100.

Bates argued the jump was driven by “the strength of its balance sheet and quality of its fund management business”, adding that “scope for ongoing third-party fund raising is far better than might have been originally envisaged”.

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Robert Sage, financials research analyst for Peel Hunt, echoed Bate’s positivity on the stock, agreeing with his outlook for its future fundraising and capital deployment.

In the firm’s latest results, CEO and CIO of ICG Benoît Durteste explained that  ‘‘scaling up’ and ‘scaling out’” is a key aim of the firm.

Julian Roberts, equity analyst at Jefferies, explained that scaling the funds would lead to a higher proportion of fee-earning assets under management, “which will enrich the mix”, and in turn grow their management fee income faster than their costs.

Covering the period for the six months to 30 September 2023, ICG reported management fee income hit £234m, up 5% year-on-year, excluding catch-up fees.

In the results, ICG reported its fundraising was “in line” with its expectations, as it was set to hit the $5bn mark.

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It cited demand for its flagship strategies ($3.2bn) and scaling strategies ($1.8bn) as a driver of this.

Durteste said the firm had enjoyed a “strategically and financially successful first half”.

Sage combined this set of results with Peel Hunt’s conclusion that “the intrinsic growth momentum in the group is not reflected in the share price”, forming his overall positive outlook for the stock.

Peel Hunt holds ICG on a ‘Buy’ rating, which Sage said “typically means that we expect the shares will rise by at least 15% over the coming 12 months”, with potential dividends as an addition to that.

He explained that ICG’s share price had initially been derated due to wider concerns about the impact of rising interest rates on its business model.

But Sage said he expected this could “turn into a tailwind” as interest rates peak then decline in the near future.

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Jefferies’ Roberts bumped his ICG rating to a ‘Buy’ just before the stock’s promotion to the FTSE 100, praising the recovery in its investment returns, which materialised “earlier than we assumed”.

“ICP manages mainly closed-end funds, which generate long-term, predictable management fees,” he said.

“We believe that the value of persistent high value funds and ICG’s ability to grow its income streams are not fully reflected in the share price along with the value of its balance sheet.

“ICG’s balance sheet could continue to de-gear without investment in growth and further shareholder returns.”

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Roberts said Durteste had been clear that “demand from limited partners for private assets, particularly credit, is unabated and that concentration of general partner relationships is benefiting the larger and more diverse providers”.

He added: “The economic dislocation of the last 18 months has made valuation more difficult, reducing primary market activity, affecting leveraged buyout players most. However, refinancing and the need for liquidity mean that there is still demand for ICG’s capital.”