One year ago I raved about FTSE 250-listed private equity firm Intermediate Capital Group (LSE:ICP), naming it my top passive income and growth stock pick for 2023.
Intermediate Capital Group provides capital for acquisitions, pre-IPO financing and management buy-outs (and buy-ins), and I said all sorts of wonderful things about it.
I noted that 2022’s troubles had presented investors with an exciting short-term opportunity to possibly buy an established growth stock at a dirt-cheap valuation of just 6.4 times earnings. That was down from around 11.3 times in March that year.
Memory like a sieve
I was also super-excited about its dividend prospects, as it was yielding 6.5% a year covered 2.4 times by earnings. Better still, management had a solid track record of increasing shareholder payouts, which had climbed from 30p in 2018 to 76p in 2022.
I noted risks too, as first-half 2023 profit had crashed from £264.7m to just £35.6m, due to the “challenging” macro backdrop. But it boasted liquidity of £1.3bn.
I finished with a flourish saying: “When I have some cash to spare after Christmas, I will buy it.”
Unfortunately, Christmas descended and I forgot all about Intermediate Capital Group. I only stumbled across my article by accident, while running down a list of the top FTSE 100 stocks of the last 12 months. ICP was in seventh place after growing 53.35% and replacing Hargreaves Lansdown on London’s blue-chip index. And I hadn’t earned a penny from my blistering foresight!
Last month, it reported that first-half 2024 profit had rocketed to £241.9m, while fundraising totalled $5bn and operating margins hit 55%. It’s just another story of a stock that got away – we all have ‘em – but it leaves me with a problem. Is it too late to buy it today?
Still worth buying
Intermediate Capital Group is inevitably a lot pricier trading at 17.6 times earnings today. Just as inevitably, the yield is lower at 4.6%. However, that still beats the average FTSE 100 yield of 3.7%. Forecasts suggest the yield will climb to 4.73% in 2024 and 5.23% in 2025.
There’s still a good opportunity here, just not as good as before. I love it when stock markets rise, but there are downsides too. Buying shares gets more expensive, and in a way, riskier.
Intermediate Capital Group is the type of company that does well when the economy is booming, so much now rests on how the global economy performs in 2024. If inflation and interest rates fall sharply as many expect, it could enjoy another bumper year. There’s no guarantee, though, as the world is yet to escape the spectre of recession. Investors are upbeat today but may take a more cautious view once the Santa Rally has passed and January is upon us.
Private equity is a volatile sector, and I already have exposure through 3i Group and Scottish Mortgage. Yet I’m building up cash for a January spree and this time I won’t forget about Intermediate Capital Group. Even if it is more expensive than it was.
