NB Private Equity Partners Ltd (LON:NBPE) is the topic of conversation when Hardman & Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Your recent report sits behind a disclaimer, what can you tell us about that?
A1: It is just the standard disclaimer that many investment companies have. In essence, for regulatory reasons, there are some countries (like the US) where the report should not be read. In the UK, because private equity (PE) is not a simple asset class, the report should be looked at only by professional/qualified investors.
Q2: You called your recent piece ‘CM day: 6 November fireworks’,what can you tell us about it?
A2: The key takeaways from NBPE’s 6th November Capital Markets Day, in our view, were i) positive market indications, including exits and an increase in the correlation between operating company EBITDA growth and NAV growth, ii) NB’s platform brings unique benefits: accessing deals, analysing investment opportunities, and GP relationships, (which have generated a big increase in opportunities presented to them, even when the overall market slowed), and iii) multiple levers for value creation mean that bottom-line return expectations are unchanged. How it will be delivered has evolved, with a greater focus on operational growth rather than multiple expansion/financial leverage.
Q3: So, what was covered on the day?
A3: After the Chairman’s introduction, there were presentations covering i) an update on the PE market environment, ii) co-investments at NB: leveraging GP relationships i.e. the value added by the manager, iii) PE outlook: US election and its impact on PE Markets and NBPE, and iv) a NB Private Equity Partners portfolio review.
Q4: The chair gave his summary of the company’s value proposition, what did he say?
A4: The Chair’s closing comments highlighted i) access to 51 premier PE managers and in co-investments, the holy grail of PE investing, ii) an attractive returns track record, iii) leveraging NB’s $115bn+ PE platform, iv) capital deployment control, v) global investing, and vi) fee efficiency.
Q5: Can you tell us a bit more about your three key takeaways?
A5: First, we may be at a point of inflection when strong EBITDA growth leads to greater valuation increases. In our view, there is a very strong long-term correlation with EBITDA growth above listed markets, feeding NAV and share price outperformance in those markets. However, in the short term, there can be noise and for a couple of years now business growth has not led to increased valuations. Our note details why this may now be changing including the benefit from a more normal exit activity. After accelerating exits by selling into the high listed market ratings in 2020-21, the stock of business reaching maturity, and so at an exit-able stage, has now been rebuilt.
In terms of value added by the manager, the proof of the pudding that the NB model works comes from the rising numbers of opportunities reviewed. In our view, this strongly supports the view that NB is a partner of choice for GPs.
Finally, the unchanged expected returns on new deals should negate investor concerns that the PE story is over, especially as, over time, the anticipated returns are actually delivered. The multiple levers for value creation mean that bottom line returns can be unchanged, even when some of the levers are less powerful than in the past.
Q6: What about the risk?
A6: 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 NB Private Equity Partners, as they are across the whole listed sector.
As we detail in our report, in our view, 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.
