ICG (LSE:ICG) Stock May Be A Bargain As Excess Returns Stay Strong

ICG has delivered a 53.3% gain over the past three years, which naturally raises a question for you as a shareholder or potential buyer: Is the current price still grounded in what the business can earn on the capital it puts to work?

• A 53.3% return over three years means anyone holding ICG through that period now has much more riding on whether the underlying capital returns can support the share price.
• The group’s model of raising and deploying third party capital, while also investing its own balance sheet, can have a direct impact on how efficiently each pound of capital is used and how much value is created for long term holders.
• What if you looked at ICG through its earnings instead? See what ICG's 10.2x P/E says about the price.

The issue now is whether the returns ICG earns on its capital are strong and durable enough to justify where the stock trades today.

If you want to test the same question on other businesses that turn capital into returns, compare ICG with companies in the 9 high quality undervalued stocks.

Is ICG Still Cheap on Excess Returns?

The Excess Returns model looks at what ICG can earn above its cost of equity on each pound of shareholder capital. For ICG, the current book value sits at £9.53 per share, while the stable book value estimate is £11.08 per share. That points to a business expected to keep reinvesting capital, not just sitting on its equity base.

Analysts see stable EPS of £2.01 per share against a cost of equity of £0.98 per share, implying an excess return of £1.03 for every share of equity funding. With an average return on equity of 18.12%, the model suggests ICG is forecast to earn well above its implied hurdle rate. This is not what a £17.86 share price always reflects when markets are cautious about capital allocators. The Excess Returns projections put ICG's estimated intrinsic value substantially above the current share price, which you can explore in more detail here. Find out what ICG could be worth using our Excess Returns estimate.

The ICG Narrative: What Would Justify Today's Price?

ICG's valuation question naturally leads to Simply Wall St Narratives, which sit on the Community page and spell out what growth, margin and earnings paths would need to hold for the stock to be worth meaningfully more or less than today. Each narrative ties a fair value to a specific storyline about ICG's potential catalysts and key risks, so you can see which version of the future current developments appear to support.

One of the top community narratives on ICG: 6% undervalued

"Although the tilt towards higher returning strategies in structured capital, secondaries and real assets has lifted the weighted average management fee rate to just under 1%..."

Discover why this Narrative puts ICG at 6% undervalued.

One more ICG check that belongs beside the valuation work

Price and return on capital only tell part of the ICG story. Our broader review has also flagged specific areas of concern that investors often overlook before committing fresh money. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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