Honeycomb Investment Trust plc (LSE:HONY) has been started at a 'buy' recommendation and a price target of 1,070p by Berenberg, which sees a "significant growth opportunity" following the merger with its investment manager Pollen Street Capital.
Pollen Street is an alternative asset manager that operates private equity and credit strategies, specialising on financial and business services industries, with a strong track record of investment performance.
Honeycomb is a UK-based investment trust that provides asset-based lending to non-bank lending businesses and other companies with a diverse portfolio of loans.
"The combination benefits both businesses," Berenberg said. "For Honeycomb, which has historically traded at a discount to its NAV, the deal provides a way to scale revenue as well as diversify the share register and improve market liquidity.
"For Pollen Street Capital, the combination provides the opportunity to use Honeycomb’s circa-£0.6bn balance sheet to seed new strategies and co-invest alongside outside investors in order to accelerate growth in assets under management (AuM)."
On the growth opportunity, the bank's analysts forecast that fee-paying AuM will grow from £2.2bn to £4.3bn at around a 25% compound annual growth rate from the 2021 financial year to 2024, within management guidance of £4-5bn AuM.
"We expect growth to be driven primarily through fundraising for new vintages of flagship strategies, offset by distributions from older funds."
Pollen St has, the analysts noted, been effective at retaining investors for new fundraisings, with around 70% of outside investors reinvesting with the firm and generally increasing their investment.
The rating was set based on the shares trading on roughly 13 times 2023 forecast earnings and about 10 times those estimated for 2024.