Private equity trust Pantheon rated ‘buy’ by City broker
Private equity trust Pantheon International has been upgraded to a ‘buy by City broker Stifel after falling to its lowest stock price since 2023.
The £1.4bn trust saw its stock price fall as low as 300p in recent days, compared to around 340p at the end of last year.
“This appears to reflect concerns across the private equity sector that exits could again be subdued this year, with the recent selloff,” said Stifel analysts Iain Scouller and William Crighton.
The recent fall in US stocks has presented a particular problem for private equity, as expectations of IPOs and broader realisations sink down after a quiet couple of years.
The analysts also credited the fall to a “fairly dull” recent interim results, with the value of the portfolio only rising 2.3 per cent over six months.
A fall in realisations has also weighed on the level of buybacks that can be pursued by Pantheon, as only £12m of shares was bought back over the six months, compared to £200m in the previous year.
However, Scouller and Crighton argued that at this point, “a gloomy outlook is priced-in,” meaning that any uptick in exit activity could lead Pantheon’s shares to surge back up.
The analysts also noted that in a six month period, the average uplift on the private equity trust’s exits came in 26 per cent above valuation.
Despite this, Pantheon currently sits at a 40 per cent discount to the value of its underlying assets, having struggled with a double digit discount since the start of the coronavirus pandemic.
“We think this is an attractive entry level for a diversified private equity portfolio, where the board aim to enhance shareholder value,” said the Stifel analysts.
The two also noted Pantheon’s shift towards a co-investment model, something pursued by a variety of trusts that could cut fees and boost returns.
However, there were some negatives to the trust’s portfolio – its balance sheet has switched from a net cash position to an eight per cent leverage following buybacks, while the trust’s outstanding commitment were “sizeable” at £733m.
Nevertheless, Scouller and Crighton set a target price of 370p for the trust, which would still leave it on a 25 per cent discount to its underlying assets if valuations remained stable.