Schroder Ventures International investment trust is looking to cash in some of its chips this year after reporting a modest 3% rise in net asset value (NAV) during 2003.
Chief executive Nick Ferguson told Citywire: 'It market conditions stay as they are then I'd expect there would be a rise in realisations.'
A combination of good cash generation, which was used to pay down debt, and improved earnings at investee companies contributed to the rise in the £766 million trust's NAV to 458.7p per share.
Semiconductor firms Memec and AMS were noteworthy contributors to performance thanks to a strong cyclical upturn in earnings. The two companies also look like they could be possible flotation prospects if opportunities do improve this year.
Travelodge was a poor performer in NAV terms during the year. The writedown to the investment reflected the standard practice of moving from a cost valuation to a valuation based on earnings.
Travelodge's earnings were heavily down in the first half of the year due to well-documented industry problems, notably the war in Iraq. The business began to come back in the second half and early 2004 trading has shown continued improvement.
Schroder expects to be able to make more investments this year than last. Ferguson said: 'Interest rates are pretty attractive for deals… and should remain so for sometime I expect.'
The trust is proposing to hand back the Schroder moniker renaming itself SVG Capital.
Overall this looks an encouraging set of results. The trust boasted today that over five years its compound growth rate of 10% compares with negative returns from both the FTSE All Share and FTSE World Index.
The market has already warmed to Schroder Ventures' and other private equity trust's prospects due to the improving environment for IPOs. The trust's premium to NAV stands at 12% which is a year high and compares with the low for the year of a 14% discount. The average premium during the last year is 4%. The average sector premium is 8%. The sector average takes into account the size of each trust and is therefore somewhat skewed by the premium rating of £5.1 billion goliath 3i investment trust.
A number of top managers have been warning of a possible second quarter correction. If this does occur it will not necessarily make too much of an impact on longer term IPO prospects and investors should feel able take the trust's expression of optimism at face value.
The shares have fallen 11.5p to 480p today following recent strong rises in the run up to today's results.