Like many in the PE space, NB Private Equity Partners Ltd (LON:NBPE) 2024 total $ NAV return (1.5%) was below the five-year average (11.0%), driven by falling valuations of listed holdings and forex. The private company growth (6.9% constant currency) was also below average, with lower-than-usual exit activity seeing less exit uplift benefit. In our view, 2024 was noise within a long-term value-creation model that should outperform listed equities. Despite challenges, the past 12-month EBITDA growth from investee companies was a strong 12%. NBPE has cash and credit facilities totalling $283m, and minimal fund commitments, meaning it can flexibly take new investment opportunities as they arise.
- Medium-term performance: Over five years to end-March 2025, NB Private Equity Partners has delivered i) an 18% gross IRR on direct investments, ii) 2.4x multiple of cost on realisations, iii) 33% average uplift to carrying value on exit, including the strong 2021. In our view, alongside the EBITDA growth, this gives investors a good view of the NBPE model.
- Managing long-term opportunities: The NB platform is seeing an increasing number of co-investment opportunities (2024 11.8 per week vs. 3.6 in 2015), and NBPE has the liquidity to pursue these opportunities. The strong EBITDA growth is indicative of the value creation by PE managers after acquisition.
- Valuation: The 28% discount is narrower than most direct peers (average 35% exc. HGT), but it rose sharply in 2022, to well above historical levels (10%-15%). In this note, we consider what may lead to a reversion to these levels. The discount appears absolutely and relatively anomalous with a resilient, conservative NAV.
- Risks: Sentiment to costs, the cycle, residual positions in highly rated listed companies following IPOs in 2020-21, the duration of the discount and valuation are the key issues for NBPE, as they are across the whole listed sector. As we detail below, they are sentiment issues and do not reflect reality, as we see it. The benefits from the current strategy may not yet be fully appreciated.
- Investment summary: With 98% of the portfolio invested in direct equity, co-investments, NB Private Equity Partners is the most focused listed vehicle in the low-cost, attractive co-investment subsector of the market-beating PE sector. The company and GP selection have proved resilient in downturns, and consistent, large historical premiums on exit should give investors comfort in the NAV. Its portfolio is diversified by name, sector, GP and geographically, but it has enough concentration for individual investments to add value. The discount is anomalous with long-term, market-beating returns.
