Company Overview: Navigator Global Investments Limited, formerly HFA Holdings Limited, is a holding company. The Company is engaged in the provision of investment management products and services to investors globally via Lighthouse Investment Partners, LLC (Lighthouse). The Company has one segment, being the United States-based Lighthouse Group, which operates as a global absolute return funds manager for the United States and Cayman Island-based investment vehicles. Lighthouse is an investment manager dedicated to managing multi-manager hedge funds for diversification and absolute return. Lighthouse has offices in New York, Chicago, Palm Beach Gardens, London and Hong Kong. Lighthouse has an investor base that spans North America, Europe and Asia, and includes high net worth individuals, family offices, endowments, foundations, trusts, investment banks, benefit plans, pension funds, healthcare and insurance companies.
 

NGI Details

Significant Rise Witnessed in Management Fee Revenue in FY19: Navigator Global Investments Limited (ASX: NGI) is engaged in the provision of investment management products and services to the investors globally via wholly-owned subsidiary named Lighthouse Investment Partners, LLC. As on August 27, 2019, NGI has a market capitalisation amounting to ~A$492.93 million. The company recently released its results for FY19 in which its management fee revenue amounted to US$105.4 million for the year, which reflects a rise of 40% on a YoY basis. The average management fee for FY19 stood at 0.68% per annum while in 2018 it was 0.73% per annum. In the early March 2018, the company entered into an agreement to acquire substantially all of the client assets of MAS, which is the multi-manager hedge fund division of Mesirow Financial. The transaction was closed on July 1, 2018. There was a transition of $5.4 billion of assets under management to Lighthouse. The investment management operating activities posted record EBITDA amounting to US$37.7 million for FY19, which reflects an increase of 10% on a YoY basis. Additionally, it was stated that the management fee revenue growth was mainly because of customised solutions business. The following picture provides a broader overview of the company’s FY19 performance:


2019 Snapshot (Source: Company Reports)

The opening AUM (as at July 1, 2018) amounted to US$16.7 billion, which was a milestone for the company. This reflected an excellent year of the asset raising by Lighthouse business over the previous financial year and a significant boost of the transitioning $5.4 billion of client relationships from Mesirow Advanced Strategies (MAS). The company added that it is maintaining its focus towards global distribution opportunities, and it is working on building the new relationships, while also deepening the existing ones. In the shorter term, the company is optimistic about Asia, particularly Japan and the Middle East.

Some of the company’s fundamental strengths include stable management, risk management and customisation. The company stated that the industry has been consolidating which might create some opportunities to acquire or partner. It was also added that no acquisitions are under consideration, however, the company continues to assess the opportunities as and when they arise. There are expectations that capital management policy and revenue-generation capabilities might help the company in gaining traction among the market players moving forward. From the analysis standpoint, the company has achieved a decent growth path from FY16 top-line of $70.52 million to $114.87 Mn in FY19, posting a CAGR growth of 17.7% over FY16-FY19. Bottom-line also improved from $14.11 Mn in FY16 to $26.84 Mn in FY19, witnessing a CAGR growth of 23.9% over the period of FY16-FY19.

Top 10 Shareholders: The following picture provides an idea of the top 10 shareholders of Navigator Global Investments Limited:

Top 10 Shareholders (Source: Thomson Reuters)

Net Margins Higher Than Industry Median: NGI possesses a decent net margin of 23.4% in FY19 as compared to the broader industry median figure of 21.3% and, thus, it can be said that NGI has a better capability to convert its top-line into the bottom-line when compared to the concerned industry. However, the company’s EBITDA margin stood at 32.8% in FY19. The company’s current ratio stood at 12.27x, which is significantly higher than the industry median of 1.46x.


Key Metrics (Source: Thomson Reuters)

It was added that, as per the company’s Board, EBITDA happens to be the most relevant measure of the overall financial performance. Considering the nature of business operations and taking into account the timing differences arising from the trade receivables and payables, EBITDA is largely consistent with cash flows generated by the operating activities.

Dividend Payments on Rise: The Board of Directors declared an unfranked final dividend amounting to 9.0 cents per share (with 100% conduit foreign income credits) which would be paid on August 30, 2019. Adding this amount to the interim dividend of 8.0 cents per share resulted in the total for the year to 17.0 US cents per share, which reflects an increase of 6% on the prior year. Also, it was added that FY19 combined interim and final dividends reflect a pay-out ratio of 73% of EBITDA.


Dividends (Source: Company Reports)

As can be seen from the above chart, the company has been shelling out decent dividend payments, which reflects that it is possessing respectable fundamentals and might attract the attention of the dividend-seeking investors moving forward. The company is having the policy of paying a dividend of 70% to 80% of earnings before interest, tax, depreciation and amortisation and impairment losses (or EBITDA).

Information On 2019 Final Dividend: In the released dated August 15, 2019, Navigator Global Investments Limited stated that it would be paying a final dividend for 2019 of US 9.0 cents per share on August 30, 2019. It was added that shareholders would be receiving the dividend in Australian dollars based on the exchange rate at the record date of August 15, 2019, and the following picture can be referred to this regard:


Exchange Rate Information (Source: Company Reports)

Announcement About AUM As At June 2019: Navigator Global Investments Limited has earlier released the figure of its total assets under management (or AUM). As at June 30, 2019, the company’s total AUM amounted to USD 14.19 billion and the below table provides an overview of the same:

Total AUM (Source: Company Reports)

In the release, it was stated that the biggest contributor to the lower AUM was net outflows. The higher than normal level of outflows throughout Lighthouse and MAS led to a combined $900 million of net outflow for the quarter ended June. Over the period of FY17-19, closing AUM recorded a CAGR growth of 22.3%.

Overview of Net fund flows for FY19: NGI stated that driver for a reduction in AUM for FY19 was the net outflows. There was a higher than normal level of outflows experienced throughout Lighthouse and MAS. Additionally, it was mentioned that the combined net outflows stood at $2.6 billion. The majority of decrease in AUM was because of the anticipated redemptions from transitioned MAS relationships, which totalled $2.3 billion throughout the year. The size of the redemptions was around $1.1 billion for commingled funds and customised solutions client.

From the Lighthouse perspective, Lighthouse Customised Solutions funds witnessed growth from the net inflows amounting to $350 million for the year. However, Lighthouse Commingled funds witnessed net redemptions amounting to $670 million.

The performance fee revenue for the year stood at $1.1 million, which reflects a fall of $6.5 million on the previous financial year. The reduction with respect to the performance fees was consistent with lower investment performance achieved throughout portfolios.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies:
Method 1: Price to Book Value based Valuation

Price to Book Value based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Method 2: Price to Cash Flow based Valuation

Price to Cash Flow based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

What To Expect From NGI Moving Forward: NGI stated that it is focusing on delivering the investment objectives for the clients and to maintain a high quality of services. The company also focuses on enhancing the processes, systems and products so that they differentiate themselves from the competitors. The company would continue to promote the managed account platform, as it believes that it provides a better model for investing in the hedge funds. The company believes hedge funds, and more specifically portfolios focused towards alpha-oriented managers with the limited market as well as factor exposures, prove their worth throughout a range of the potential market outcomes.

The company’s focus is to improve efficiency by which the portfolios seek their objectives by finding the best mix of talent globally, improving access to research, data, and analysis and reducing the overall costs. The company stated that it sees many trends that indicate the markets might be unpredictable in the short term, but they are of the view that it is better to pay more attention to the broader phenomena like business and credit cycles rather than the headlines. It was added that the company’s approach happens to be consistent and seeks to deploy towards the differentiated strategies by partnering with the specialised investment talent.


Growth Pillars or Strategic Goals (Source: Company Reports)

Stock Recommendation: The stock of Navigator Global Investments Limited witnessed a fall of 24.94% in the span of previous three months while, in the time frame of past one month, the stock has fallen 12.89%. Currently, the stock is trading towards the 52-week lower levels of $2.710 with PE multiple of 12.88x, proffering a decent opportunity for accumulation. The company’s top line has witnessed a CAGR growth of 13.27% between FY15- FY19 and, thus, it can be said that the company is possessing decent capabilities to generate revenues. Also, the company’s annual dividend yield stood at 8.04%, which is higher than the industry median of 5.1% (Financials). The company’s strategic goals revolve around growing AUM via quality client base and diversifying the product and services offering by leveraging capabilities of proprietary Managed Account Program. With respect to the investment performance, it was stated that the company has been focusing on producing consistent and low volatility returns. Based on the foregoing, we have applied two relative valuation methods, P/BV and P/CF multiples and have arrived at the target price upside of lower double-digit growth (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of A$2.970 per share (down 2.303% on 27 August 2019).


NGI Daily Technical Chart (Source: Thomson Reuters)

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