Extraordinary growth from Dutch discount retailer Action continues to be a boon for private equity trusts, with Abrdn Private Equity (APEO ) selling some of its stake and planning to use the proceeds to buy back its own shares. 

Action, which spurred giant 3i (III ) past £20bn last year, is the top holding of Abrdn Private Equity, the European-focused fund of funds. 

Abrdn, which holds the retailer as a co-investment with 3i through a special purpose vehicle, decided to sell down some of its stake, dropping it from 6.2% of net asset value at the end of March to 5.6% at the end of December. 

This is in stark opposition to 3i, who in November said it had lifted its stake in Action to 55%, from nearly 53% a year ago. 

3i Group chief executive Simon Borrows, who is chair of Action, said the power of compounding and the retailer’s successful model would accelerate its growth and make it a ‘200 bagger’ within a few years. 

However, 3i is trading on a double digit premium while Abrdn has been languishing on a hefty 40% discount.

Buyback programme

As a result of its continued battle against its discount APEO is planning to use a portion of the €34.6m (£29.6m) of proceeds made from the Action sale to start a buyback programme. 

APEO has been mulling buybacks for some time as despite strong performance from the managers, including disposals in excess of valuations, its share price has ‘diverged materially’ from the net asset value (NAV).

The trust is trading on a 39% discount to the end of December NAV of 763p per share, wider than the long-term average of 22.3% over 10 years. It has only traded wider during the global financial crisis and the onset of the coronavirus pandemic.

‘The ability to recycle a significant portion of the Action proceeds, realised at 100% of its 30 June 2023 valuation, into buying APEO shares at a significant discount to NAV, is a compelling use of the company’s capital at this time and provides immediate NAV accretion to APEO’s shareholders,’ the board said.

‘It also highlights in the clearest terms the disconnect between APEO’s current share price and the valuation of its underlying portfolio.’

APEO said it would continue to ‘monitor the evolution’ of its share price and ‘may look to extend the programme’. Shareholders will be asked to extend its authority to buy back shares at the annual general meeting in March.

However, the board warned that it needs to weigh this up against its balance sheet and longer-term considerations, such as increasing its exposure to direct co-investments and its concentrated shareholder base.

Pressure is growing for private equity trusts to take more action given their steep discounts. APEO’s peer Pantheon International (PIN ) was applauded by analysts for its ‘bold’ £200m buyback plan, with the board called ‘a leader’ in the space.

However, Stifel’s Iain Scouller is not convinced this is the right approach for Abrdn, which is ‘effectively financing buybacks through higher leverage’. 

Scouller said the trust’s outstanding commitments are equal to 57% of its net asset value and it was using net leverage of 6% after the Action proceeds were recieved in October. 

‘We do wonder if a better focus would be to reduce net debt and commitments, with this potentially helpful to the market’s view of the company and possibly helping to reduce the discount in due course,’ the analyst wrote. 

However, he retained a ‘buy’ reccomendation with a fair vlaue of 580p. 

INPP kicks off as Infra activity ramps up

2023 was the busiest buyback year on record and, as discounts remain wide, trusts have kicked off this year with continued activity.

This week, along with the news from Abrdn, there was International Public Partnerships (INPP ), which undertook its first purchases as part of a £30m programme.

On Tuesday it bought 750,000 shares at an average price of 130.3p, compared to the end of June NAV of 155.2p. A day later it purchased another 500,000 shares.

This followed an announcement in December that it would spend £30m to repurchase shares after the disposal of debt investments.

Analysts at Numis expect more activity from the infrastructure sector as they highlighted that many of these trusts are experiencing their widest discounts since launch.

Greencoat UK Wind (UKW ) is one of the most active, having announced a £100m buyback at the end of October, equivalent to 2.6% of net assets. Foresight Solar (FSFL ) also has a lot of fire power left after it expanded a £10m plan to £40m in November.