Intermediate Capital proposes 300m pound capital return as AuM soars

LONDON (ShareCast) - Strong full year results and news of on ongoing return of cash from asset manager Intermediate Capital (Other OTC: ICGUF - news) impressed the market, with assets under management lifted 39% thanks to strong levels of fundraising. Record (LSE: REC.L - news) assets under management of €18.0bn were up 39% on the same period last year, following a record €6.4bn of new money raised, with third party fee-earning AUM also increased by 39% to €12.3bn.

Group profit before tax rose 9% to £178.5m, ahead of forecasts, as the fund management company strategy delivered profits up 48% to a record £52.0m, although profits from the investment company were 2% lower at £126.5m.

Adjusted earnings per share at 42p rose by 5% and came in ahead of expectations.

After strong levels of realisations in the first half, the company's balance sheet was full to bursting and management have proposed returning £300m through a special dividend, as it looks to increase its return on equity to over 13% in future, on top of a total dividend for the year that was lifted 4.8% to 22.0p and a £100m buyback during the year.

"The past year has been a very successful one for ICG and marks a year of significant progress," said chief executive Christophe Evain, who said the balance sheet would be re-geared to within a range of 0.8-1.2 times, at the upper end of analyst expectations.

The recent round of European fundraising and investing has beaten internal expectations, with European funds - European Mezzanine, Senior Debt Partners and UK Real Estate - raised in record time, contributing 48% of the record €6.4bn raised in the year.

Fundraising momentum has continued, Evain said, with 11 funds being marketed and new secondaries strategy launched last year and the new year has started well with £1.2bn of AUM raised since the year end, well ahead of medium-term targets. Bank of America Merrill Lynch said the results were "complex but strong" and overall were "encouraging".

"We were looking for £400-600m capital return over the next two years. We therefore see the proposed £300m special dividend as a strong start, especially as the company has committed to keep the capital structure under review, with a further update with the FY results." Analysts also noted that regulation seems helpful especially for the group's collateralised loan obligation (CLO) business, and the its diverse product set should "continue to provide strong momentum".

Canaccord Genuity (Other OTC: CCORF - news) said the numbers were ahead on all fronts and it expected "sizeable EPS upgrades".

"Management is appropriately leveraging the balance sheet to prevent the dampening of returns from the front line business," the Canadian broker said, praising the broadening product and geographic exposure as the US and Japan were added to the primary European business that should support continuing fund raising momentum.

Analysts remain positive given the ability of the fund management business to produce recurring earnings to support a higher balance sheet leverage.

"This allows management to more effectively manage the balance sheet allocation for shareholders, something lacking in the past."