IDI ended Q3 2024 with minimal activity on the investment front. Including its recent minority stake in TTK, a liquid leak detection specialist, IDI completed only three transactions YTD, compared to 14 in the same period last year. Though IDI’s net income is likely to suffer accordingly, this underlines IDI’s savvy investment approach in persistently uncertain market conditions. With substantial investment capacity ready to be tapped when the time is right, IDI remains an attractive player poised for selective growth.
Flat NAV yet a much lower discount than its peers
2024 looks set to be a quiet year for IDI, both in terms of NAV and investment activity. The holding company ended Q3-24 with a NAV per share of €91.94, virtually stable YTD and slightly below the H1-24 level of €92.35. At this level, IDI is currently traded at a discount of 26%, almost unchanged from June 2024’s 25%. If the discount remains meaningful, it underlines IDI’s attractiveness relative to its peers in the private equity space, such as Wendel, GBL, and Eurazeo, all of which are trading at a 40-plus% discount.
Investment activity on the wane
After two banner years for IDI, marked by 36 transactions, the pace slowed in 2024. To date, IDI has only completed three deals, including the acquisition of a stake in Exsto, a group specializing in high-performance elastomer solutions, and the Talis Group (77.3%-owned by IDI) acquisition of Aston, a school specializing in IT, digital, and cybersecurity training, in H1-24. While IDI did not record any new operations in Q3-24, the holding company did announce at the end of October the acquisition of a minority stake in TKK, a designer and manufacturer of liquid leak detection instruments. These three transactions remain modest compared with the 14 recorded as of September 2023, indicating a shrewd investment approach on the part of IDI.
We feel that the decline in the Group’s investments underlines the absence of attractive opportunities in the current environment, shaped by uncertainties and what still seems to be too wide a bid-ask spread in the unlisted universe.
TTK, a particularly attractive investment
IDI has a keen eye when it comes to finding hidden gems in which to invest. Indeed, the holding company’s track record is impressive. Among the most notable transactions of recent years was of course the landmark sale of Flex Composite Group to Michelin for €700m, corresponding to a stellar cash-on-cash multiple of 12x IDI’s initial investment and an IRR of 38%.
We believe that IDI’s latest investment illustrates the point once again. Exclusive TTK patented technology to locate leaks accurately and quickly positions TTK to benefit from the strong demand in the universe of critical environments such as data centers which require highly reliable systems to prevent costly water damage. TTK’s offer is all the more attractive now that governments have made it a matter of growing priority. In particular, the European Union has allocated €12.6bn after COVID and until 2026 to support its member states in improving water infrastructure and addressing leaky water pipes. Overall, TTK stands uniquely positioned to win public sector funding and to position IDI in an ESG-tied investment.
A prime balance sheet
Although IDI’s balance sheet is slightly down on H1-24, it remains rock solid with €697m of consolidated shareholders’ equity. The Group has one of its highest levels of investment capacity, with €300m at its disposal to seize opportunities as they arise. At the risk of sounding redundant, IDI is clearly not short of ammunition, but once again, seems better off keeping its power dry for now.
Looking to 2024
IDI does not offer any guidance for the full year. However, in line with the fall in investments, IDI recorded a net decline in income from investment activities in 9M-24, from €84.7m to €14.8m. As a result, Group net income came to €3.2m, compared with €72m last year. We therefore expect 2024 to be a lean year on the net income front, as IDI is an astute investor, not wary of a slow year. Investors do not need to panic, however, as IDI certainly goes about its business in the right way, which is indeed its greatest asset: not being constrained by time when the environment does not lend itself to investments.
We are likely to revise our EPS estimates downwards for FY 24 in line with the lower level of transactions. For all that, we maintain a very positive view on the stock.
