NB Private Equity Partners Ltd (LON:NBPE) is the topic of conversation when Hardman & Co’s Financial Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Can you just remind us why your report sits behind a disclaimer?
A1: It’s a very standard disclaimer that many investment companies have. In the essence, for regulatory reasons, there are some countries, like the US, where the report should not be read. In the UK, because private equity is not a simple asset class, the report should be looked at by professional and qualified investors, but it’s a very standard disclaimer, nothing to worry about.
Q2: Now, you called your recent piece, ‘2024, Short-Term Noise Over Long-Term Growth’, can you just give us a brief outline of the report?
A2: Like many in the private equity space, NB Private Equity Partners’ 2024 total dollar average return was below its five-year average at 1.5%. The five-year average is 11%, and this was driven by falling valuations of listed holdings and foreign exchange effects. The private company growth, 6.9% constant currency, was also below the long-term average, with lower-than-usual exit activity seeing less exit uplift benefit.
In our view, though, 2024 was noise within a long-term value creation model that should outperform listed equities. Despite all macro challenges, the past 12-month seed-bit dollar growth from the investee companies was a strong 12%. They have cash and credit facilities totalling $283 million and minimal fund commitments, meaning it can very flexibly take new investment opportunities as they arise. So, short-term noise within the long-term growth story.
Q3: You say focus on the longer term, what is their track record there?
A3: Over the five years to end March 2025, NBPE has delivered an 18% gross IRR on direct investments, a 2.4 times multiple of cost on realisation, and a 33% average uplift to carrying value on exit, including the strong 2021.
In our view, alongside the EBITDA growth that I mentioned earlier, this gives investors a good view of their long-term model.
Q4: So, that’s the past, what about the medium-term outlook?
A4: The company is seeing an increasing number of co-investment opportunities. In 2024, it was 11.8 per week against just 3.6 ten years ago in 2015 and they have, as I mentioned, the liquidity to take these opportunities. So, it has the opportunity to refill the barrel as the current portfolio companies are realised and exited.
We believe, though, that the core to long-term performance is about improving businesses once they’re being acquired. Strong growth over time will deliver strong valuation gains and over the long term is why PE can deliver outperformance against listed markets.
We noted the strong portfolio investing company operative metrics reported by the company in 2024, 12% EBITDA growth. There’s a chart in our report which shows a longer term trend with NBPE investing companies delivering relatively stable, low-teen EBITDA growth over each of the past three years, despite all the variable challenges that have been seen over that period. Margins have been widened, further evidence of value added by their partner private equity managers.
We also note from the 2024 disclosures that the latest investments have actually been performing better than the portfolio average as a whole.
Q5: The 2024 returns were below average, why was that?
A5: As I say, it was a disappointing year. The NAV per share was $27.53, or £21.98, with a 1.5% NAV total return in the 12 months. Now, this was driven by positive private company valuations. I mentioned up 6.9% on a constant currency basis but that was offset by the impact of quoted holdings, which were minus 8.6%, and foreign exchange.
As I mentioned, the private valuation growth was below average with less exit uplift benefits. Deal activity, though, has been increasing in recent periods, which gives some encouragement for the outlook.
Q6: Finally, Mark, what can you tell me about the risks?
A6: As with any investment, there are risks; the sentiment costs, the cycle, residual positions in highly rated listed companies, which were IPO’d in 2020 and 2021 but they represent just 6% of the NAV now. They have been an area of weakness. The duration of the discount, the fact that it’s gone on for some time, and valuation of the net asset value are key issues for NB Private Equity Partners, as they are across the whole listed sector.
Now, as we detail in our report and in previous reports, in our view, these are sentiment issues and they do not reflect the reality as we see it. Additionally, the benefits from the current strategy may not also be fully appreciated.
