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We reviewed NBPE’s business model in our initiation, Co-investments generating superior performance. We noted the high-secular-growth and downside-resilient investee companies, the value added by GPs, the good co-investing cashflow and return profile and the value added by NB. The 2023 results confirmed all these trends. The key numbers were i) NAV p/sh $28.07 (£22.02), ii) private portfolio +5.3% in 2023 on a constant currency basis, iii) EV/LTM EBITDA 14.9x, and iv) debt/EBITDA 5.3x. The portfolio company weighted average LTM growth in revenue and EBITDA was 11.4% and 15.2%, respectively, with margins widening despite market challenges.

  • Model offsetting rate pressure: In our note, Value creation in a higher-rate environment, we examined why NBPE’s GP return targets were unchanged in a higher-rate environment. That note explored how they were going to be achieved and in 2023 the GPs delivered superior EBITDA growth.
  • Positive NAV return despite market challenges: In our view, the core driver to long-term outperformance is improving underlying companies’ performances. Exit premiums indicate the current NAV is conservative but, for returns, provide icing on the cake. 2023 NAV growth, despite slower exits, supports our view.
  • Valuation: The 24% discount is below most direct peers (average 31% exc. HGT), but it (like peers) rose sharply in 2022, to well above previous levels. In recent notes, we reviewed what may lead to a reversion to historical levels. The discount appears absolutely and relatively anomalous with a resilient/conservative NAV.
  • Risks: Sentiment to costs, the cycle, modest 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 PE sector. However, 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 over 93% of the portfolio invested in direct equity, NBPE 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 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.
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