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Register now for 14 November -

Hardman & Co Investor Forum | November 2024

The key takeaway from AGA’s 27 June Capital Markets Day was that 84% of value creation comes from operational improvements in the investee companies, i.e. the value added by APAX. On average, under APAX’s ownership, revenue growth accelerates by 700bps, EBITDA growth 1,500bps and the EBITDA margin 700bps. Additionally, it highlighted that i) AGA gives access to companies unavailable elsewhere, ii) its companies are growing and performing well, iii) it is an All Weather Investment, with 84% of value creation under the manager’s control, iv) it has a robust balance sheet, and v) the 5% of NAV dividend has a greater value when the shares are at a bigger discount. It also reviewed why management considered now was a good time to invest.

  • Other messages: The presentation reviewed what sets AGA apart from its peers (portfolio construction and balance sheet), the Derived Investments benefits, how the portfolio is valued and why this is conservative, the fee structure and what AGA is doing (and how it thinks) about addressing the discount.
  • Financing: The presentation also reviewed the PE financing market, and how it applies to APAX/AGA. With 82% of portfolio debt maturities beyond 2027, ca.75% of debt at fixed rates (and 90% of swaps maturing post mid-2024) and average net debt 4.7x EBITDA, APAX appears well-positioned to weather any market disruption.
  • Valuation: Listed holdings and Derived Investments mean that ca.40% of Apax’s portfolio is marked to market. Adjusting for the debt portfolio at par, AGA’s discount to NAV of 23% rises to 36%, giving a PE portfolio well above that of its direct peers (23%-34%). The NAV appears resilient to slowdowns. The 2023E yield is 7.8%.
  • Risks: Sentiment to costs, the cycle, valuation and over-commitment are sector issues. Residual positions in highly rated stocks, following 2020-21 IPOs, saw exposures to underperforming 2022 names, recognising that value was extracted on the IPOs. The Derived Investments portfolio generates income towards dividends, and has liquidity/capital benefits, but complicates the story.
  • Investment summary: Apax has delivered market-beating returns by selecting businesses that it can transform post-acquisition. Buying these companies at over 20% below peer ratings, accelerating their revenue growth and improving their margins, and then selling the reinvigorated businesses at a ca.10% premium, is the playbook that has been repeated again and again. Investments are focused in sectors with structural growth and resilience. Capital flexibility is enhanced by the Derived Investments portfolio. The discount is the “icing on the cake”.
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