IS Private Equity (ISGSY) has recorded its strongest-ever set of first half results mainly due to its profitable exit of ODE Yalitim in March. It also agreed to sell one more investment in August and is in final discussions to make a new investment. Since its inception in 2000, ISGSY has made 13 investments and completed eight profitable exits (one investment and one exit are yet to be finalised) as of August 2012.
The company reports that these eight exits have achieved an average IRR of c 23% (on a US-dollar basis) and an average cash exit multiple of 1.9x. Well-timed exits continue to bolster ISGSY’s already strong balance sheet, providing ISGSY with ample cash to capitalise on investment opportunities.
Portfolio activity
In March, ISGSY sold its 17% stake in ODE Yalitim, an insulation materials manufacturer, for USD 10.5m, generating a profit of TRY12.4m net profit (equivalent to c USD 6.9m at current exchange rates). In August it agreed to sell its 6.7% position in Havas, an airport ground-handling service provider, for €15.2m. Completion is expected by year end, generating significant profits for ISGSY.
Both sales are to the respective majority shareholders and reinforce ISGSYs leading position in terms of the number of private equity (PE) transactions completed in Turkey. In June, ISGSY agreed its fourteenth investment since launch in Toksöz Spor (www.toksozspor.com), a leading sporting goods retailer in Turkey. It plans to invest TRY23.9m for a 51% stake and expects to complete by year end.
New investment opportunities
The Turkish PE market is continuing to grow due to (i) demand for financing that the banks cannot meet on their own; (ii) exit needs of the incumbent shareholders both as a factor of family-owned companies’ succession planning and also straightforward cash-out route; and (iii) increasing need of management know how. With its robust balance sheet, experienced team and extensive network, ISGSY remains well positioned to capitalise on these investment opportunities.
Valuation
Based on ISGSY’s current share price, it trades at a discount of 24% to its inflation-adjusted NAV, which is not marked to market. Although this discount has narrowed over the past two years, we believe it still does not reflect the strong track record of the company (eight exits to date, with an average US dollar IRR of 23%) or the potential within the remaining portfolio companies. In addition, ISGSY’s FY12 dividend yield of 9.1% is considerably higher than the Turkish average of 2.0%.
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