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MBOs fuel private equity trusts

Private equity investment trusts are trading at a prem- ium and managers in the sector are confident that management buyouts and flotations will drive growth this year.

The AITC private equity trust sector is currently trading at a premium of 0.6 per cent – one of only two sectors trading above net asset value, the other being high income.

The narrowing of the sector’s average discount over the past two years has seen trusts move from valuations at 15.8 per cent below NAV at the end of April 2003, to -4.2 per cent at the same time last year and now a premium.

The AITC says the sector has outperformed the FTSE All Share every month since July 31, 2001 and over 10 years it has returned 316 per cent.

Dunedin Enterprise manager Ross Marshall says performance in 2004 was driven by a series of high flotations and MBOs which enabled investors to realise gains on investments. He says this flow is continuing throughout the first quarter this year. Alth-ough valuations of bigger MBOs are starting to look overvalued, there is less competition in medium-sized deals where stakes can be bought for more attractive prices.

Legal & General Ventures chief executive Adrian John-son says private equity is attracting top brains from the public sector who are bec- oming disillusioned with ris- ing over-regulation. He says: “There has been huge growth in UK and European private equity in the last decade, driven by buyouts. There is no reason why this level of act- ivity cannot be maintained.”

Kleinwort Capital Trust manager Richard Green says: “In 2004, nearly 10bn was invested in 1,566 companies worldwide by UK private equ- ity firms. This is not a bubble but a tangible and long-term investment alternative to other areas.”

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Apple: a stellar technology story

By Ali Unwin, head of technology sector research

Apple recently announced the highest-ever recorded quarterly net profit ($18bn), with the sale of 74.4 million iPhones helping the company deliver $74.6bn of revenue for the quarter ending December 2014. These sales were largely driven by strong demand for the new iPhone 6 and iPhone 6 Plus. Highlights included Chinese iPhone sales doubling year-on-year and unit growth of 44% in the US — supposedly a well-penetrated market. Apple ended the quarter with $178bn in cash on its balance sheet, having generated a staggering $30bn in free cash flow during the quarter.

At Neptune, we have been long-term believers in the Apple story, and continue to hold the stock in a number of our portfolios based on the company’s long-term growth prospects. This is predicated on our belief that Apple has proved thus far that it can — unusually for a consumer electronics company — maintain high margins for a sustained period of time, even as adoption of new technology slows down and competitors produce similar-specification products.

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