Can investors consider buying £1 for 60p with this FTSE 250 investment trust?
Harbourvest Global Private Equity‘s (LSE:HVPE) a private markets investment firm. Having mostly gone sideways in 2024, shares in the FTSE 250 member currently trade at around £24.50.
The firm has some impressive businesses with strong growth potential in its portfolio. But the most interesting thing might be the price at which the stock’s trading.
Harbourvest’s portfolio
Harbourvest offers a way of getting exposure to some really interesting businesses. Its portfolio includes some companies that investors have probably heard of, but aren’t able to invest in.
One example is Shein – the online fashion retailer that seems to be taking the world by storm. The firm’s rumoured to be exploring a potential listing on the UK stock market in 2025.
Another is Action, a European discount retailer that’s been growing impressively. Its success is one of the key reasons 3i‘s been one of the best-performing UK stocks over the last decade.
There are others, such as Discord, Databricks, and Figma. But despite having some very interesting assets, shares in Harbourvest are trading below their net value.
Buying at a discount
Harbourvest’s net asset value (NAV) is estimated to be around £40.50 a share, but the stock’s trading at around 60% of this. That means every 60p invested buys assets with a net value of £1.
By itself, this doesn’t make the stock an opportunity. In theory, the discount to NAV can persist indefinitely, meaning investors have no way of realising the underlying value of what they own.
In practice, this might be unlikely. But without a reason for thinking the gap’s going to close any time soon, investors might have a long wait before they are able to benefit of the low valuation.
Interestingly though, it might be that the gap’s going to close. Harbourvest’s under pressure from its shareholder base to make moves to unlock the value in its shares.
Share buybacks
One way of trying to realise the underlying value is through share buybacks. And investment firm Metage Capital wants Harbourvest to do this, instead of trying to expand its portfolio.
Metage has written to the FTSE 250 firm’s shareholders about this. And if it happens, investors could find the gap between the company’s share price and its NAV starts to close.
This makes the stock look very attractive, but Harbourvest’s management doesn’t look keen on the idea. Instead, it seems to be taking on debt in order to finance future acquisitions.
That means investors need to be careful. The potential for a big gain if the underlying value of the business is unlocked is there, but there’s also a genuine risk that this may not happen soon.
One to watch
There’s a very real sense in which investing in Harbourvest is like buying £1 for 60p. But the big question is when investors are going to be able to get that extra 40p.
The value’s there, but exactly when investors will be able to get at it’s another question. If the company starts buying back shares at a significant rate, it might be just around the corner.
This however’s by no means guaranteed. So I think this is one to keep a close eye on and wait to see what happens. That’s the approach I’m taking.
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
