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Register now for 16 April -

Event | Do you know the value of your business? It’s time you do!

We reviewed NBPE’s business model in our initiation, Co-investments generating superior performance. We noted the high-secular-growth and downside-resilience of portfolio companies, the value added by GPs, the positive co-investing cashflow and return profile, along with the value added by the manager, NB. The 26 September results confirmed all these trends. The key theme running through the October CMD was the superior EBITDA growth of its portfolio companies. In 2006, this was 63% of expected value creation, but it has risen to 93% in recent deals. Critically, target IRRs (20%+ net) are unchanged despite higher interest rates.

  • EBITDA growth: NB has focused co-investments in sectors with secular, sustained growth and market-disruptive models, which are less sensitive to macro factors. Many of its companies have pricing power when inflation is high. 70% of its top 30 holdings have completed M&A with new opportunities at attractive prices.
  • Results: Our note 1H’23 results summary: continued growth reviewed the results. The key numbers were i) NAV p/sh $29.24 (£23.00) Sep $27.15/£22.24, ii) 4.8% NAV TR at 30 June 2023, iii) portfolio company weighted-average LTM 14.9% revenue and 15.4% EBITDA growth, iv) EV/LTM EBITDA 15.4x, and v) debt/EBITDA 5.4x.
  • Valuation: The 32% discount is in line with direct peers (average 32%), and it (like peers) rose sharply in 2022, to well above historical levels. Adjusting for the legacy income investments, the discount rises to 37%. The NAV appears resilient and conservatively valued, making the discount absolutely and relatively anomalous.
  • 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. 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 92% of the portfolio invested in direct equity investments in companies, 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, in our view, is anomalous with long-term, market-beating returns.
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