Company Overview: Navigator Global Investments Limited (ASX: NGI) provides investment management products and services to investors globally through its wholly-owned subsidiary- Lighthouse Investment Partners, LLC. The company operates under one reportable segment of the US-based Lighthouse Group, which operates as a fund manager for investment vehicles, and offers hedge fund solutions to investors looking to diversify their asset mix with equity and fixed-income allocations.
NGI Details
Acquisitions and Decent Investment Performance to Aid Earnings: Navigator Global Investments Limited (ASX: NGI) is engaged in the provision of investment products and services to its clients. The market capitalisation of the company, as on 23 February 2021, stood at ~$309.70 million. As per a recent update, NGI has successfully completed the acquisition of a portfolio of investments from funds managed by Dyal Capital Partners. The acquired portfolio has a proven track record of generating strong returns to its partners. The transaction enhances Navigator’s access to a variety of future accretive, organic and inorganic growth opportunities. It also increases the company's shareholders base and provides an opportunity to improve long-term liquidity. NGI has issued Dyal funds 40,524,306 ordinary shares in the company and convertible notes, which can be converted into 67,574,292 ordinary shares in the company. This amounts to 40% economic interest in Navigator on a fully diluted basis.
The company believes that by exposure to smartly designed and actively managed portfolios of hedge fund strategies, it is possible to diversify the portfolio from traditional markets. It will continue to create and provide investment strategies, that compound investor’s capital.
1HFY21 Performance Update: During the first half of FY21, the company witnessed decent investment returns across all the portfolios against the recent market volatility. There was an increase of 12% in AUM to US$13.2 billion as on 31 December 2020, when compared to 30 June 2020 levels. Performance fee grew by 166% to US$9.8 million during 1HFY21, compared to the previous corresponding period. The growth was aided by strong performance in the December 2020 quarter. The management fees during the period stood at US$37.7 million and the company reported an underlying EBITDA of US$15.1 million in 1HFY21. The company reported a comfortable cash position of US$34.1 million during the end of the period. It has a comfortable balance sheet with the absence of borrowings as on 31 December 2020. NGI has determined a dividend of 3.5 US cents per share for the period payable on 12 March 2021, with a record date of 25 February 2021 and an ex-date of 24 February 2021.
Performance Fee Performance (Source: Company Reports)
Balanced Mix of AUM Composition: NGI reported a balanced mix of Assets Under Management across its platforms and services as on 31 December 2020. The company expects a continued shift towards the platform service and customised solutions given the lower fee rates in these offerings. Commingled Funds (Diversified & Global Long/Short) – These are multi-strategy funds that allow external funds managers to trade the assets under certain guidelines; Customised Solutions- Managed account structure for the client’s customised portfolio; Platform Services- Provides clients with exposure to hedge fund assets to access the benefits of a managed account structure.
AUM Composition as on 31 December 2020 (Source: Company Reports)
Resilient Rise in AUM: Despite the impact of COVID-19 headwinds in the company's AUM performance during the start of the year, NGI reported a decent rebound in AUM levels owing to strong investment performance in the past few months. AUM from Customised Solutions grew by ~22% or US$560 million and ended the period at US$6.77 billion. Decent investment performance added US$210 million to AUM for the Platform Services, and when combined with the net flows resulted in ~37% increase to AUM during the period.
AUM as on 31 December 2020 (Source: Company Reports)
Top 10 Shareholders: The top 10 shareholders together form around 60.17% of the total shareholding, while the top 4 constitute the maximum holding. Neuberger Berman, LLC and McGould (Sean) are holding a maximum stake in the company at 20% and 9.59%, respectively, as also highlighted in the chart below:
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
Key Metrics: NGI reported resilient margin performance during 1HFY21, compared to H2FY20. It delivered a gross margin of 90% during the period and net margin improved to 16.7%. ROE of the company stood at 4.4% during 1HFY21. There was also an improvement in the cash cycle days to 70.9 days during 1HFY21 from 75.2 days in H2FY20.
Growth and Profitability Profile (Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
Key Risks: The company operates in the financial services sector and is exposed to credit risk, liquidity risk, price risk, interest rate risk and market risk. The given market risks have the potential to impact the Group’s Assets Under Management, as well as the performance fee revenue. NGI maintains a decent amount of cash on its balance sheet, and as such the change in interest rate might impact the profitability of the company. It is exposed to currency risk on revenue, expenses, receivables and payables. NGI faces price risk on a constant basis as any adverse changes in the price of the invested securities will have a direct impact on the AUM of the company, along with the performance and management fees earned. Moreover, the COVID-19 pandemic may give rise to further volatility in the market, impacting NGI’s AUM and performance.
Outlook: The company believes that its solutions and services are well-positioned for success in the long term, with the stabilisation of the impact of the COVID-19 pandemic. It is exploring new investment and acquisition opportunities of targets with significant growth prospects. NGI has provided an underlying EBITDA guidance of US$28-31 million in FY21, and statutory EBITDA guidance of US$25.5-28.5 million. It has witnessed an increase in demand for its equity portfolios and platform services with a decent investment performance in the December 2020 quarter. The company expects the full profit-sharing impact from the acquisition of the portfolios from Dyal Capital Partners to be visible from FY22 onwards.
Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: NGI reported total revenues of US$52.74 million during 1HFY21. As per ASX, the stock of NGI is trading below its average 52-weeks’ levels of $1.130-$3.390. The stock of NGI gave a positive return of ~8.52% in the past three months and a positive return of ~6.70% in the past six months. On a technical analysis front, the stock of NGI has a support level of ~$1.604 and a resistance level of ~$1.976. We have valued the stock using a P/BV multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We presume that the company might trade at a slight premium to its peer average P/BV (NTM Trading multiple), considering its improvement in investment performance, stable balance sheet and the completion of the acquisition of the investment portfolios from Dyal Capital Partners. For the purpose, we have taken peers such as Centuria Capital Group (ASX: CNI), EQT Holdings Limited (ASX: EQT), Pendal Group Limited (ASX: PDL), to name a few. Considering the current trading levels, expected upside in valuation, decent increase in AUM levels, robust increase in performance fees during 1HFY21 and comfortable balance sheet with the absence of borrowings, we recommend a 'Buy' rating on the stock at the current market price of $1.860, down by 2.618% as on 23rd February 2021.
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NGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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