We highlighted our capital markets day takeaways in CM day: 6 November fireworks; notably, i) positive market trends, ii) NB’s platform unique benefits, and iii) multiple levers for value creation. In this note, we update investors on i) the latest NAV/portfolio, ii) NB Private Equity Partners Ltd (LON:NBPE) revised capital allocation framework, iii) the potential impact of current Trump polices, and iv) the impact of interest rate expectations, which seem to evolve daily but which, in our view, have seen a trend of higher-for-longer forecasts. The underlying message is that PE, and NBPE, reacts dynamically to changing conditions and has a track record of outperformance across a range of environments.
- $120m buyback pool: On 19 February, NBPE announced an increased three-year buyback pool of $120m. The company balances new investments (currently 104% NAV invested), dividends (2025 expectation of 47c ($43m)) and now an increased pool for buybacks. This follows shareholder discussions.
- NBPE’s co-investment model: Facing 2024 challenges, NB Private Equity Partners’s unique approach has created i) a strong balance sheet, ii) cashflow flexibility, iii) a portfolio ready for material realisations as things open up, iv) North American domestic/mid-market buyout focus, and v) new investments performing strongly.
- Valuation: The 30% discount is slightly lower 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 review 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. 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.
- 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 premiums on exit should give investors comfort in the NAV. Its portfolio is diversified by name, sector, GP, geography and size, but it has enough concentration for individual investments to add value. The discount is anomalous with long-term, market-beating returns.
