Beaufort Securities Breakfast Alert: IP Group and John Laing Group


Today's edition features:
• IP Group (LON:IPO)
• John Laing Group (LON:JLG)

The FTSE-100 finished Friday's session 0.33% higher at 6,954.21, whilst the FTSE AIM All-Share index closed 0.89% higher at 820.14. In continental Europe, the CAC-40 finished 0.60% up at 4,764.07 whilst the DAX was 0.22% better-off at 11,203.63.
Wall Street
In New York on Friday, the Dow Jones gained 0.72% to 19,756.85, the S&P-500 rose 0.59% to 2,259.53 and the Nasdaq added 0.5% to 5,444.5.
In Asian markets this morning, the Nikkei 225 had risen 0.78% to 19,144.76, while the Hang Seng lost 1.17% to 22,495.04.
In early trade today, WTI crude was up 4.99% to $54.07/bbl and Brent was ahead 4.36% to $56.70/bbl.

UK 's current GDP growth rate won't last, warns business body
"The business as usual" approach taken by many firms following the Brexit vote has helped boost UK growth this year, but it will not last, the British Chambers of Commerce (BCC) has warned. The business body expects GDP to grow by 2.1% this year, up from the 1.8% it forecast just three months ago. But uncertainty over the UK's EU relationship and higher inflation will "dampen medium term growth," it said. It expects the UK's economy to grow by 1.1% next year, and by 1.4% in 2018. A separate report on business conditions from accountancy and services group BDO found business output rose for the first time in November after 17 months of decline. It said this suggested that "for now" the UK economy had stabilised "in a lower gear" than it had been running at before the referendum. However, it said, business optimism was continuing to fall, and it expected "a bumpy road ahead in 2017 for British businesses and the economy".

Company news
IP Group (LON:IPO, 151.60p) – Buy
IP Group, the developer of intellectual property-based businesses, on Friday announced that its portfolio company, Oxford Sciences Innovation plc ('OSI'), had raised £230 million in a new financing round via a private placement of ordinary shares. OSI was formed in May 2015 in order to fund the next generation of spinout companies from the University of Oxford, when it exceeded its initially targeted £300m fund raise. OSI provides capital and scaling expertise to businesses driven by intellectual property developed at the University. Its mission is to build on its position as one of the world's leading research institutions, and further to enhance its track record for developing globally successful businesses. The investment round included both new and existing investors including some of Asia's leading technology companies and sovereign wealth funds, as well as European industrialists. Major corporate investors in OSI include Invesco Asset Management Limited, IP Group Plc, Lansdowne Partners (UK) LLP, Oxford University Endowment Management, the Wellcome Trust and Woodford Investment Management LLP. Its individual investors include the entrepreneur Sir Charles Dunstone and artificial intelligence pioneer Demis Hassabis of Google Deep Mind.

Our view: Following completion of this financing round, IP Group's undiluted beneficial stake of 8.1% in OSI will be valued at £55.5 million, representing an unrealised fair value gain to the Group of £8 million. IP Group has committed a further £7.5 million to OSI as part of this funding round, in which the ten largest original investors also participated. OSI's capital base previously stood at £350m but, following the round, is now close to £600m. Raising this capital reflects confidence in the breadth and quality of opportunity available to investors in helping develop a world-class commercial ecosystem around its unmatched intellectual capital and heritage. The University has an existing long track-record of developing global science and technology businesses through its technology transfer subsidiary Oxford University Innovation (formerly Isis Innovation). It has established over 100 spinout companies based on technology developed by University of Oxford researchers since 2000, including eight in the last year. Spinouts valued in excess of £200m include Oxford Nanopore Technologies Limited and NaturalMotion. Others include AIM and Nasdaq listed companies such as Velocys and Oxford Immunotec. While IP Group itself saw a minor reduction in its NAV at the interim stage to around £685m, progress continues to be made with the private portfolio. Other than OSI, Ultrahapatics and Oxford Nanopore in particular provide significant upside. A substantial cash position (some £175m at the half year) suggests it can continue to fully commit to new deployments for more than 2 years without needing to realising any existing gains. The shares have tracked back from the highs achieved some 15 months ago, underperforming the FTSE250 by 25%, to now stand at an estimated 1.33x NAV. This suggests the shares are trading some 15% below fair value (or 1.5x NAV) and Beaufort accordingly retains its buy rating on the shares.

John Laing Group (LON:JLG, 276.70p) – Buy
John Laing Group, the international originator, active investor and manager of infrastructure projects, on Friday provided its pre-close update for the year ended 31 December 2016 ('FY2016'). The Group said its net asset value meets the management expectations, subject to constant exchange rates and no change in the IAS19 pension deficit as at 30 November 2016. Total investment commitments stood at £181m; including 8 wind farm investment commitments totalling £134m in the UK, Germany, France, Australia and the US, Intercity Express Programme Phase 1 in the UK at £37m and A6 Parkway in Netherlands at £9m. Total realisations agreed in 2016 to date amounted to £255m, with aggregate prices achieved in line with portfolio valuation. John Laing's CEO, Olivier Brousse commented "Throughout the year, we have continued to focus on our core business of greenfield infrastructure, including investments in new projects, active management of our existing portfolio and realisation of several mature assets as we anticipate future opportunities. We are well positioned to take advantage of a growing number of new infrastructure projects in the US, Canada, Australia, New Zealand and Europe." Special dividend for 2016 will be approximately £107m, ahead of previous guidance of £100m. The Group will announce full year results on 7 March 2017.

Our view: John Laing performed in line with its guidance, supported by strong Primary Investment activities across its regions. The special dividend of £107m was based on its 3 completed realisations (£56.4m) and the agreed sale of 100% of A55 UK and 30% of M6 Hungary holding, both expected to complete shortly (£28.3m and £22.5m, respectively). Agreed sale of 29.69% holding in A1 motorway in Poland for c.£128.6m is expected to complete by Q1 FY2017, subject to a number of consents and conditions. Looking ahead, the Group said the pipeline of new investment opportunities remains strong in both PPP and Renewable Energy, across all three geographic regions. The Group is currently participating and shortlisted in 9 PPP bids, which due to reach financial close in 2017 or 2018, including five in North America. In addition to the encouraging Primary Investment activity, the market for Secondary Infrastructure investments also remains strong, of which the Group is expecting to move 8 of its investments from the primary to the secondary investment portfolio this year. John Laing has a diversified investment portfolio with attractive pipeline of international opportunities. With the Group performing in line with its ambitious guidance, Beaufort maintains a Buy rating on the shares.

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