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I'm looking to add something FTSE 250 Index growth stocks to my blue chip portfolio and IP Group (LSE:IPO) has caught my eye.
IP Group “invests in innovative and cutting-edge companies in science”often university- and research-focused companies, which it hopes to help drive growth and emerge profitable.
Two examples are holding company Accelercomm, which provides decoding for companies involved in 5G communications, and life sciences company Artios, which develops new therapies to treat cancer cells.
Can IP Group continue to grow at this rate?
Investing in cutting-edge companies at their early stages is always risky, as impressive intellectual property doesn’t always have commercial impact. Unsurprisingly, IP Group’s share price has been volatile. Its stock is on the up at the moment. It’s up 21.49% over the past month, at a time when the FTSE 250 has dipped 0.07%. However, it’s down 21.43% in 12 months. Someone who invested three years ago would be sitting on a 70% loss.
There are big potential rewards here, but also above-average risks.
Annual results for the year to 31 December 2023 were mixed, with total net asset value down 14.4% to £1.19bn. Chief executive Greg Smith noted that the early-stage investment market “It remained a challenge”.
However, he said IP Group ended the year “In a strong financial position with £227 million of gross cash”after some successful fundraising.
He still felt able to launch a £20m share buyback programme, which boosted the share price. He then pulled back as general confidence plummeted.
So there are cyclical risks, as well as other risks, such as the obstacle course of passing clinical trials and the challenge of finding a seller and achieving a profitable exit.
IP has done well on this front this year, with Garrison technology selling to US cybersecurity firm Everfox, while Intelligent Ultrasound Group sold its clinical ai business to GE HealthCare for £40.5m.
Generating cash for shareholders
First-half exits have brought in more than £43m, exceeding the total for the full year of 2023, and the board celebrated by announcing another £10m buyback on 8 August. That triggered the recent surge in the share price.
The board has pledged to return more cash whenever the share price discount to net asset value exceeds 20%. Since 2021, it has returned more than £75m to shareholders through dividends and buybacks.
IP Group is an exciting company operating in a sector with huge potential, at a time when the UK is seeking to become a ‘science superpower’. It is tackling some of the world’s biggest challenges, including the energy transition and digital transformation. Its key co-investors include Bosch Ventures, BP Ventures and Clean Energy Ventures.
So should I buy it? I think it's an interesting opportunity. However, I'm wary of buying shares of smaller companies after a sudden rise in the share price, especially considering that this rise was due to some successful sales, which are usually irregular. I'll wait a few weeks to see if the share price stabilizes and then I'll consider buying.
