SVG leaps on £50 million share buy-back

Shares in SVG Capital (SVI.L) leapt on Thursday, after the private equity investment trust kicked off a £50 million share buy-back and reported that the value of its assets rose 11% last year.

The FTSE 250 company said net asset value (NAV) to 337.1p a share at the end of December, up 12.8% from a year earlier, excluding the trust’s own valuation of its fund management division. Total distributions from the portfolio for the year came in at £253 million, a twofold increase on those for 2010, £123 million, it added.

SVG also priced the £50 million tender to buy shares at a 10% discount to its year-end NAV – is at the top end of the range announced in December – adjusted for market movements in the value of its quoted portfolio.

On that basis, the offer would be priced at about 315p, according to analysts at KBW, a 32% premium to Wednesday’s closing price. The buy-back is part of a plan announced in December to return £170 million to shareholders.

Investors welcomed the move, driving up the shares 21p, or 9%, to 259p. The stock has taken on 23% in the past three months, beating its rivals and the wider London market.

Nonetheless, the shares were still trading at a discount of 35.2% to the trust’s NAV at Wednesday’s close – somewhat wider than their average discount of 34.6%, but narrower than the levels above 40% to which the gap expanded last year.

In a report on its 2011 earnings, SVG marked up the value of its stake in luxury label Valentino and fashion group Hugo Boss by £96 million, which it holds through its investments in European buyouts house Permira.

The group also said it strengthened its balance sheet through distributions; buy-backs of senior notes and convertible bonds; and an extension of its revolving credit facility.

Lynn Fordham, SVG chief executive (pictured), hailed ‘another year of good progress’, citing balance sheet strength and good earnings and revenue growth from the underlying portfolio companies.

She added that the positive momentum has continued into 2012, and Permira – in which SVG’s investments account for almost 80% of its value – was not seeing ‘much evidence of any meaningful softness in earnings.’

Following the results, analysts at Singer Capital Markets reiterated a ‘buy’ rating for the trust, saying they had put its price target of 295p under review given the earnings momentum in the portfolio.