We initiate coverage of IDI with a “Buy” recommendation. IDI strikes us as a private equity firm more aligned to the interests of its stakeholders than the industry’s mediocre record in that respect. Its investment model based on engaged and entrepreneurial ownership has proven successful, ensuring stable dividends at an attractive yield and an accomplished track-record in value creation. We see substantial upside potential from its diversified roster of assets, as shown by a discount to NAV of over 50%.
A pioneer in the private equity arena in France
With over 50 years of experience in the field and a particular investment focus on SMEs. IDI is one of the first listed investment companies in France (1991), achieving an annualised IRR (dividends reinvested) of 15% over the past 30 years. Its NAV at the close of H1 21 stood at €577m, with an average discount to NAV of c.30% since 2014.
Flexible investment approach supports value creation
IDI differs from its PE peers as it has no time constraints and as its management has skin in the game at the holding level as well as at the equity stakes level, bringing confidence that capital is being allocated wisely to support long-term value creation. By not being subject to the vagaries of time, IDI can accompany the investee companies through the whole development process without having to resort to hasty value-pumping measures in order to appease investors waiting to be paid out.
On the other hand, the liberty of not having to adhere to a calendar also allows the company to be agile and seize opportunities when they arise. This may result in IDI exiting investments faster than its more usual investment horizon of five to seven years, to capitalise on favourable market conditions and realise higher IRRs.
An attractive high-growth portfolio
The portfolio is composed of 16 main holdings as of September 2021, allocated across a variety of sectors, including many companies present in digitally-native businesses (reminding us of a smaller Kinnevik), which are supported by strong underlying trends with high-growth potential such as media streaming (Dubbing Bros), e-commerce (Group Label), the energy transition (TucoEnergie) and social issues like education (Talis) and healthcare (Winncare Group).
Regarding the more industrial-type businesses like Flex Composite Group, these follow a solution-based approach which bring added value and recurring revenue generation, setting them apart from more commoditised and, hence, cyclical peers. IDI’s diversified asset base allows stakeholders to gain exposure to these unlisted, high-potential SMEs that may fall under the radar of equity investors.
Strong dynamic in NAV growth and high yield support valuation
Our estimated NAV of €88.40 per share provides ample upside potential compared to the current share price, as well as IDI’s (understandably) more conservative valuation of €77.90 per share (end of June 2021). The solid execution in H1 21 (NAV progression of +19.5% ytd) points to a very active year for IDI in terms of portfolio rotation. With 10 deals taking place since the start of the year, including three exits in quite favourable conditions (cash-on-cash multiples of 3.3x to 3.9x).
The €185m-strong liquidity position at the end of June — €159m after the September dividend payment — ensures that IDI will count with the flexibility to pursue this strong investment dynamic through H2 21 and 2022, with positive implications for future NAV growth. In addition to the 51% discount to NAV, our target price is also supported by an attractive dividend yield of 5.0%, standing well above the 2.3% average across our holding company coverage.
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