Better Capital bucks listed private equity trend

In the struggling listed private equity sector, Jon Moulton’s Better Capital continues to stand out from the crowd with its shares trading at a premium to net asset value, a rare feat in a sector characterised since the financial crisis by substantial discounts.

Its first fund, or ‘2009 Cell’ as the firm calls it, reported net asset value growth of 34.3 percent since launch. Over the six month period to 30 September, NAV per share for the fund rose from 123.81 on 31 March pence to 133.13.

For its 2012 Cell, NAV was “materially unchanged” (97.45 pence, down from 97.72 pence), with its underlying businesses “Progressing satisfactorily”, according to the firm.

Better Capital committed £58 million to new and bolt-on acquisitions over the current financial year to date. The 2012 Cell has made its second investment, committing £40 million to Jaeger.

When your underlying assets are private shareholdings, the relationship between the net asset value and the share price is interesting and relevant, but a far more important metric is long term asset value growth Ross Butler

The 2009 Cell is now fully invested, the firm said, while its 2012 Cell has made two investments so far and is currently 35.3 percent invested. In April it acquired a 90 percent stake in UK fashion retailer Jaeger for £40 million, having invested £25 million in double glazing company Everest in March.

“Market conditions for most portfolio companies remain challenging and are predicted to be for some time yet,” the firm said in its results statement. “However, the track record of Better Capital investing in and turning around troubled businesses is expected to yield attractive exits. Planning to achieve those exits is already underway and the Board anticipates a distribution to shareholders of 5 pence per share in Q1 2013.” That distribution equates to a payout to investors of £10.4 million.

The firm appears to one of the bright spots in a troubled sector of the listed private equity market.  According to European trade body LPEQ, private equity investment trusts (excluding 3i Group) suffered a 31.3 percent decline in their average share price over the last five years, Private Equity International reported in April.

Better Capital’s structure is one of the reasons the firm’s shares continue to trade at premia to NAV, Moulton told Private Equity International. “We are distributing, rather than reinvesting proceeds as a permanent capital vehicle would do. We have no fees based on net assets and are a market leader in a very popular area [which is turnaround investing],” he said.

But while it is understood Better Capital is the only UK-listed firm that is trading at a premium, this does not mean other listed private equity firms are all doing badly, Ross Butler from LPEQ told Private Equity International.

“When your underlying assets are private shareholdings, the relationship between the net asset value and the share price is interesting and relevant, but a far more important metric is long term net asset value growth. Are you delivering that?” he said. “The rest of the listed private equity industry isn’t doing less well, it’s doing very well, but for one reason or another, their shares are less popular at the moment,” he added. 

Better Capital shares were trading at 147 pence at 10:30 GMT on Wednesday, an 8.9% increase on the share price of 134 pence on 30 March.