The basis of our valuation starts with the NAV, which is estimated as an aggregate of the individual valuations of the participations in the portfolio, segmented in IDI’s two operating pillars, Private Equity Europe and Private Equity Emergents. IDI has seen its discount to NAV decrease substantially, from over 50% to just above 25%. We still believe there is significant upside, as IDI’s conservative asset valuation has been proven through successful disposals, where exit prices often exceed the fair value retained in the NAV.
Being a pure-play investment company with no consolidated activities outside the parent and IdiCo, the DCF is not particularly elucidating when it comes to valuing this type of holding company structure. As a result, the DCF primarily reflects the dividend flows from investee companies, since trying to estimate cash entries from potential disposals seems too vague of an exercise given IDI’s investment profile, which is not subject to fund liquidation schedules like the majority of its private equity peers do. This was the case in 2020, where due to an unfavourable market environment brought by the COVID-19 pandemic, management held back on disposals, having just carried out the sale of HEA Expertise in April 2020 on conditions agreed before the sanitary and economic crisis (and realising a solid 35% IRR on its investment).
Regarding the peer metrics valuation, the approach is much more clear-cut. We base it on a group of family-type holding companies with a control/hands-on style in the management of the underlying assets. Many of the above hold assets in their respective portfolios that follow a service-based focus, which supports added-value ambitions and recurring-revenue generation, setting them apart from more commoditised and, hence, cyclical peers. The yield-based valuation jumps out, presenting substantial upside potential, justified by IDI’s solid c.5% dividend yield, compared to a modest 2.5% for its peers.
Please also read section ‘Worth Knowing’ about the impact of the SCA status on valuation
