SVG posts encouraging results ahead of buy-back

For SVG Capital, distributions outweighed capital calls last year for the first time since 2008, as buyout firm Permira delivered strong returns on its investments.

Fund of funds SVG Capital, which invests mainly in funds managed by global buyout firm Permira, posted encouraging full-year results on Thursday, boosting its share price by 8 percent.

SVG’s net asset value per share rose 11 percent to 350p, it said in its results statement for the full year to 31 December.

The positive momentum has continued into 2012 and Permira is not seeing much evidence of any meaningful softness in earnings

Lynn Fordham, SVG Capital

SVG announced plans in December last year to overhaul its strategy – a process that will involve further diversification beyond its traditional commitment to Permira, together with a pledge to return £170 million to investors.

As part of the results, the firm announced plans to launch a £50 million tender offer to be priced at a 10 percent discount to the December NAV. The news caused SVG’s share price to rise 20p to 258p by midday on Thursday. At year end, it had net debt of £128 million – 12 percent of shareholders’ funds – and £121 million of cash.

Lynn Fordham, chief executive of SVG Capital, said: “[SVG has had] another year of good progress, both in terms of performance and paving the way for its future investment strategy. We have a strong balance sheet and the underlying portfolio companies continue to demonstrate good earnings and revenue growth.

“The positive momentum has continued into 2012 and Permira is not seeing much evidence of any meaningful softness in earnings. That said, we remain cautious on the outlook for the macroeconomic environment, which we believe will remain challenging in the near term,” she added.

The firm’s investment portfolio generated a total return of 11 percent over the course of 2011, it said, “despite the negative impact of contracting comparable earnings multiples in the year”.

SVG said this was driven by strong performance by Permira’s portfolio companies, plus some significant realisations.

Valuations across the Permira funds increased significantly in 2011 driven by very strong growth in many of the underlying portfolio companies

Permira spokesman

A Permira spokesman commented: “Valuations across the Permira funds increased significantly in 2011 driven by very strong growth in many of the underlying portfolio companies. The sale of Provimi to Cargill and the partial realisation of Galaxy Entertainment in a volatile environment also provided substantial liquidity to the funds’ investors.”

The Provimi exit generated a 2.3x return, while the partial realisation of Galaxy yielded a 2.1x multiple, according to a source.

SVG is not as heavily invested in the later investments made by Permira IV, the firm’s most recent fund, having put a break on activity during the economic downturn. A Permira investor said that across the firm’s three funds, valuations had increased by 16 percent last year. In the Permira IV portfolio alone, earnings before interest, tax, depreciation and amortisation rose by 28 percent compared to 2010, the investor said.