NB Private Equity Partners (LON:NBPE) is the topic of conversation when Hardman & Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Mark, before we go anywhere, your recent report, it sits behind a disclaimer. Can you just remind us why that’s there?
A1: It’s a very 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 is not seen as being a simple asset class, the report should be looked at by professional and qualified investors. But it’s a very standard disclaimer and nothing to worry about.
Q2: You’ve called your recent piece ‘First Half 2025 Results Turning the Corner’,what can you tell me about your report?
A2: The reason, in our view, why the first half results may be characterised as turning the corner is threefold, really. Firstly, there’s been an improvement, albeit modest, but there’s been an improvement in financial performance. Secondly, the outlook for exits with the expected uplift carrying value has improved. Third, the pipeline for new business was very good.
Now, NB Private Equity Partners’ strong balance sheet means it has ample liquidity to take advantage of these new investment opportunities and its recent focus on mid-life co-investments means that the value creation from these new investments has been relatively rapid.
Current performance does remain below long-term trends, but a normalisation in exits and a strong new investment performance would see a more traditional level of returns generated. As we note in our report, we are forecasting rising gains in the second half of 2025 and also through to 2026.
Q3: Now, did NBPE’s recent Capital Markets Day and its updated capital allocation framework affect your views on the results at all?
A3: Our views were strongly confirmed by both the recent Capital Markets Day and the announcement on its updated capital allocation framework. The latter announced an acceleration in the $120 million three-year buyback programme, an increase in the allocation of new investments to at least $100 million over the next three to six months, and targeting an investment level at 105 to 110% of NAV. It’s currently 103%. Third, maintaining a dividend policy, which targets an annualised yield on NAV of 3% or greater. So, backing acceleration in all of those areas with the dividend maintained. All of this is backed by about $165 million of realisations announced year to date at an aggregate uplift of 17% carrying value.
Confidence in the outlook for additional liquidity, with a number of exit-ready companies and further realisations anticipated in the coming months, has driven the accelerated buyback and increased investment.
Q4: You touch on the impact of NBPE’s increased midlife co-investment focus. What can you tell me about that?
A4: NB has been focusing new investments on midlife co-investments, where NB invests after the PE manager has held the company for a period of time, often a number of years, and has already started to make operational improvements. So, we believe the value creation journey has already begun and that’s evident in the rapid EBITDA growth we’ve seen in the 2024 deals.
Importantly, NB, the manager, has been targeting this market proactively, seeking out potential deals from partners, often before the deal itself has been structured. Like all co-investments, and unlike primary fund allocations, there is no commitment ahead of the deal, which is great for managing cash flow.
Q5: Now, in 2024, and again in the first half of 2025, returns were below average. Why was that? What may change the situation?
A5: We went into some detail in this in our note, not unsurprisingly, really. We think the key drivers were, first of all, lower than usual exit activity, which generated less uplift as an exit benefit. Secondly, the impact of higher interest rates on bottom line earnings. Now, the effect of this was being lagged because PE-backed businesses have effective treasury management. So, it’s only now really starting to be felt fully on the bottom-line earnings. Thirdly, it does still take some time for operational improvements to feed through in what can be challenging markets. Additionally, in any given period, there are some portfolio mix effects.
Now, in terms of what will change, as we noted earlier, exits are now accelerating. The benefit of the turn in interest rates will become increasingly felt and the operational improvements from the mid-life investments should really start to be visible.
Q6: Finally, Mark, what can you tell me about the risks?
A6: All investments carry risks.
For NB Private Equity Partners, sentiment to costs, the cycle, residual positions in highly rated companies following IPO in 2020, about 6% of NAV now. It has been an area of weakness over a few years. The duration of the discount and the valuation are key issues for NBPE, as they are across the whole listed private equity sector. As we detail in our report, in our view, these are sentiment-driven issues, and they do not reflect the reality as we see it.
Finally, the benefits from the current strategy may not yet be fully appreciated.
