Standard Life Private Equity Trust weathers COVID storm with strong annual results

Alan Gauld, investment director

Standard Life Private Equity Trust PLC has posted strong annual results for the year ended 30 September 2020 despite the economic upheaval of the coronavirus pandemic.

Over the period, the company’s NAV total return was 11.7% (2019: 10.5%) versus -16.6% (2019: 2.7%) for the FTSE All-Share Index.

The share price total return+ of -4.6% also outperformed the comparator index despite volatility arising from the market reaction to COVID-19. The company has delivered returns in excess of the wider UK market over all time frames.

Estimated NAV at 31 December 2020 was 488.7 pence per share (actual NAV at 30 September 2020 was 501.0 pence per share). The company’s total outstanding commitments stood at £471.4m (2019: £450.3m). The value of outstanding commitments in excess of liquid resources as a percentage of net assets was 28.9% (2019: 42.6%).

As at 31 December 2020, the company had outstanding commitments of £468.9m.

At the same time, the valuation of the underlying portfolio at 30 September 2020 increased 12.2% compared to 30 September 2019. The company’s exposure to relatively resilient sectors (notably Technology, Healthcare and Consumer Staples) helped to underpin portfolio growth despite the global pandemic.

The year was also a bumper one for the company in terms of realisations, making it the second highest annual total in the company’s history. The portfolio continued to generate strong realisations during the year, with distributions of £140.7m (2019: £107.4m). This includes the realisation of the Company’s position in 3i Eurofund V, which was its largest fund exposure at 30 September 2019.

Distributions reflected a relatively quick return to private equity deal-making and exits once the initial impacts of Covid-19 were overcome.

During the month of December, the company received £24.2m of distributions and paid £20.3m of drawdowns.

The company had cash and cash equivalents of £33.1m at 30 September 2020 (2019: £66.3m). In addition, it is due £15.3m (2019: £21.8m) of deferred consideration from investments sold in 2019. In September 2020, the Company increased the size of its syndicated revolving credit facility from £100m to £200m.

The company has paid three quarterly dividends of 3.3 pence per share and the board has announced a fourth quarterly dividend of 3.3 pence per share.

This will be paid on 29 January 2021 to shareholders on the register on 29 December 2020 and will make a total dividend for the year to 30 September 2020 of 13.2 pence per share. This represents an increase of 3.1% on the 12.8 pence per share paid for the year to 30 September 2019 and compares to the increase in the Retail Price Index of 1.1% in the year to September 2020.

Christina McComb OBE, chair, said: “2020 has been dominated by the COVID-19 pandemic, and the impact has been and continues to be far reaching across global economies and societies. Against this backdrop, the company’s portfolio has proven relatively resilient.

“In the Board’s view, this demonstrates the value of long-term investing inherent in the private equity class. In the case of the Company’s strategy, we have also observed the benefits of the diversification of the portfolio, its low exposure to industries badly impacted by Covid-19 (Travel, Leisure, Retail) and relative weighting to Technology and Consumer Staples businesses.”

“It is clear that the Covid-19 pandemic will continue to have a profound impact during 2021. The introduction of effective vaccines allows hope for the eventual suppression of the virus. But most commentators agree that the challenges for governments globally to manage the economic and social impacts will stretch over several years.

“As far as the company is concerned, we enter 2021 with a strong balance sheet and portfolio. Moreover, the Board has confidence in the investment approach of the Manager to continue to seek out the best private equity managers and to maintain a well-diversified portfolio. In contrast with public markets, previous periods of economic strain have demonstrated the positive qualities of private companies to innovate and create new products and services relevant to changing circumstances and consumer needs and preferences. In that regard, we believe the company is well positioned to take advantage of new investment opportunities going forward.”

Alan Gauld, investment director, Standard Life Private Equity Trust PLC, added: “COVID-19 and its impact on the company will continue to be the main focus of our attention as we move into 2021 and we retain a cautious outlook, despite the positive developments around the deployment of Covid-19 vaccines. We are under no illusions regarding the longer-term global economic fallout on the back of pandemic-related restrictions during 2020.

“That said, there are factors that provide us with optimism when we look ahead. As previously mentioned, the company’s portfolio has shown resilience through the pandemic, which gives us confidence as we move into 2021. We see the Healthcare, Technology and Consumer Staples sectors continuing to grow in prominence in the portfolio at the expense of more cyclical sectors.”

He continued: “We also look positively upon prospects for private M&A, despite the practical issues posed by the pandemic. Much like in 2020, M&A activity in 2021 is likely to be hampered by restrictions on physical meetings until the world returns to some form of normality. However, even if physical restrictions remain in place, we expect private equity to continue transacting high quality assets in popular sectors.”

“Fundamentally we believe that private equity thrives on the opportunities that present themselves during periods of market dislocation and economic headwinds. The private equity industry currently has plenty of capital, with record levels of dry powder ready to deploy. Furthermore, we expect that secondary activity will increase as investors in illiquid assets come under liquidity or allocation pressures and need to rebalance their portfolios by selling exposure to private equity assets.

“By extending the company’s debt facility from £100m to £200m during the year, we believe that the company is in a strong position to take advantage of the investment opportunities that will arise in 2021 and beyond.”

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