I’m looking to add some FTSE 250 growth stocks to my portfolio of blue-chips and IP Group (LSE: IPO) has caught my eye.
IP Group “invests in breakthrough science and innovation companies”, often university-based research-led companies, which it hopes to help nurture into growth and exit at a profit.
Two examples are portfolio holding Accelercomm, which provides decoding for firms involved in 5G communications, and life sciences company Artios, which develops new therapies for dealing with cancer cells.
Can IP Group keep growing at speed?
Investing in cutting-edge early stage companies is always risky, as impressive intellectual property doesn’t always have commercial teeth. Unsurprisingly, the IP Group share price has been volatile. Its shares are on fire right now. They jumped 21.49% over the last month, at a time when the FTSE 250 fell 0.07%. However, they’re down 21.43% over 12 months. Someone who invested three years ago would be sitting on a 70% loss.
There are high potential rewards here, but also above average risks.
Annual results for the year to 31 December 2023 were a mixed bag, as total net asset value shrank 14.4% to £1.19bn. CEO Greg Smith observed that the market for early-stage investing “remained challenging”.
Yet he said IP Group finished the year “in a strong financial position with £227m gross cash”, after some successful fund aising.
It still felt able to launch a £20m share buyback programme, which lifted the share price. Then it retreated as wider sentiment dipped.
So there are cyclical risks here. That’s on top of other risks, such as the obstacle course of passing clinical trials, and the challenge of finding a seller and making a profitable exit.
IP has done well on this front this year, with the sale of Garrison Technology to US-based cybersecurity firm Everfox, while Intelligent Ultrasound Group’s sale of its Clinical AI business to GE HealthCare for £40.5m.
Generating cash for shareholders
First-half exits have brought in more than £43m, beating 2023’s full-year total, and the board celebrated by announcing another £10m buyback on 8 August. That triggered the recent share price spike.
The board is committed to returning more cash whenever the share price discount to net asset value exceeds 20%. Since 2021, it has returned more than £75m to shareholders through dividends and buybacks.
IP Group is an exciting company, operating in a sector with massive potential, as the UK tries to turn itself into a ‘science superpower’. It’s tackling some the world’s biggest challenges, including the energy transition and the digital transformation. Leading co-investors including Bosch Ventures, BP Ventures and Clean Energy Ventures.
So should I buy it? I think this is an exciting opportunity. However, I’m wary of buying a smaller stock on the back of a sudden share price spike. Especially given that this one was triggered by some successful disposals, which tend to be lumpy. I’ll wait a few weeks to see if the share price settles, then I’ll consider buying.
