# Apax Global Alpha delivering market-beating returns

- Link: https://www.directorstalkinterviews.com/apax-global-alpha-delivering-market-beating-returns/4121128469
- Published: 2023-09-28T08:27:18+01:00
- Author: Amilia Stone

The interim results to June 2023 reconfirmed **Apax Global Alpha plc **(LON:APAX)
core strengths, notably i) Apax enhances the operational performance of the funds’
investments ‒ LTM revenue and EBITDA growth of 16.0% and 14.1%, respectively, are,
we believe, ahead of the market, albeit slowing in 2Q, ii) a 24% uplift on exits,
proving conservative accounting and that the NAV is realistic, iii) a 2.4% NAV return,
with the five-year 12.4% annualised return, and iv) the Debt portfolio proved its
worth, with diversified, more stable returns, and generating cash to pay the dividend.
Despite rising interest rates, the investee companies, Apax Funds and the trust 
itself have shown great resilience.

 * **Successful strategy:** Apax Global Alpha’s strategy of “mining hidden gems”
   by focusing on chosen high-quality sub-sectors, identifying companies within 
   that space that have the potential to improve and then executing operational 
   improvements, has again delivered positive returns and net cash generation, despite
   challenging markets.
 * **Interest rate sensitivity:** We note the investee companies’ below-average 
   gearing (4.4x, vs. PE industry average 6x-7x), their strong cash generation, 
   reducing leverage in 1H’23 (4.4x EBITDA, vs. 4.8x end-2022), 75% of debt being
   fixed and swaps mainly maturing post mid-2024. Below, we also detail the trust’s
   and PE sensitivities.
 * **Valuation:** Listed holdings and Derived Investments mean that ca.25% of Apax’s
   portfolio is marked to market. Adjusting for the debt portfolio at par, AGA’s
   discount to NAV (27%) rises to 40%, well above the peers’ range (17%-32%) on 
   its PE portfolio alone. The NAV appears resilient, making the discount absolutely
   and relatively anomalous.
 * **Risks:** Sentiment to costs, the cycle, valuation and over-commitment are sector
   issues. Residual risk on the 2020-21 IPO positions appears to be modest. The 
   Debt portfolio generates additional returns, income towards dividends, and has
   liquidity/capital benefits, but complicates the story.
 * **Investment summary:** Apax Global Alpha has delivered market-beating returns
   by selecting businesses that it can transform post-acquisition. Buying these 
   companies at a discount to peers (ca.20%), accelerating their revenue growth 
   and improving their margins, and then selling the reinvigorated business at a
   premium to those same peers (ca.10% premium), is the playbook that has been repeated
   again and again. Investments are focused in sectors with structural growth and
   resilience. Capital flexibility is enhanced by the Debt portfolio. The discount
   is the “icing on the cake”.

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