Company Overview: Navigator Global Investments Limited (ASX: NGI) provides diversified investment management products and services to investors globally through its wholly-owned subsidiary Lighthouse Investment Partners, LLC. The success of the company depends on three factors, AUM, Fee rates and people. Lighthouse manages several multi-strategies focused funds, which utilize Lighthouse's proprietary managed accounts. These own and control the assets and liabilities and authorize external fund managers to trade the assets within specific guidelines. Customized solutions offer investors the ability to access the benefits of the managed account structure in their own customized portfolio.
NGI Details
New Growth Avenues and Earnings Accretion: Navigator Global Investments Limited (ASX: NGI) provides diversified investment management products and services to investors globally, through its wholly owned subsidiary Lighthouse Investment Partners, LLC. As on 25 August 2020, the market capitalization of the company stood at ~$279.71 million. FY20 ended with Assets under Management of US$11.8 billion, reflecting a decline of 17% on the pcp. This was mainly due to a reduction to AUM from investment performance impacts, a reduction due to net outflows from MAS assets and Lighthouse. The company seeks to attract and retain AUM by offering quality investment products and services and delivering competitive performance and features. During FY20, the average management fee was 0.66% p.a as compared to 0.68% p.a in FY19. Performance fee revenue for the year stood at $5.6 million, an increase of $4.5 million on the previous financial year.
During the year, the company reported revenue of US$101.5 million and EBITDA of US$30.5 million. In the same time span, NPAT of the company was US$18.1 million, and basic EPS stood at 11.19 US cents per share. The Board determined an unfranked dividend of 5.5 US cents per share, bringing the total dividend for the year to 14.0 US cents per share.
During 1H20, NGI diversified its traditional market exposures and reported a solid financial position, delivering innovative investment solutions. The company finished the first half of the 2020 fiscal year with a healthy balance sheet, with cash of US$35.1 million and total liabilities of US$29.5 million. Despite the significant headwinds in the financial market with the onset of COVID-19, the performance of the equity-focused funds was pleasing. This reflected a proactive approach to de-gross the risk in these portfolios.
Despite the economic impacts of COVID-19 pandemic, positive investment performance resulted in a decent performance for certain calendar year funds and portfolios and performance fees earned by global long/short portfolios. The global asset management industry is a highly competitive space, and NGI is focused on the alternatives sector, specifically on the multi-manager hedge funds solutions.
FY20 Financial Highlights (Source: Company Reports)
Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of Navigator Global Investments Limited.
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
Key Margins: During FY20, gross margin of the company stood at 90.3% as compared to the industry median of 95.2%. In the same time span, EBITDA margin of the company was 29.9% as compared to the industry median of 58.8%, and net margin stood at 17.9%. During the year, Return on Equity was 8.8%, higher than the industry median of 7.9%. This shows that the company is well managing the capital of its shareholders and is capable of generating its profits internally. In the same time span, current ratio of the company was 7.42x as compared to the industry median of 1.38x. This indicates that the company is liquid enough to pay off its current liabilities using its current assets. During the year, assets/equity ratio of the company was 1.13x, lower than the industry median of 4.63x and debt/equity ratio stood at 0.12x as compared to the industry median of 0.53x. This indicates that the business is financed with a significant proportion of investor funding and a small amount of debt, resulting in a financially stable balance sheet.
Key Margins (Source: Refinitiv, Thomson Reuters)
Increase in Performance Fee Revenue and Healthy Balance Sheet: As on 31 December 2019, Lighthouse managed US$13.4 billion of assets. During the first half, management fee revenue of the company was US$46.6 million with a steady fee rate of 0.68% per annum. During the half-year, performance fee revenue was US$3.7 million, reflecting an increase of US$3.4 million on the previous financial period. The increase in performance fees is consistent with the positive investment performance achieved during this period across the portfolios. The trend in redemption of the MAS assets has continued in 1H20. However, the transactions have regardless been a good contributor to group earnings. From a strategic perspective, the company has continued to execute its strategy to retain and grow its AUM.
1H20 Financial Highlights (Source: Company Reports)
Acquisition of Portfolio of Strategic Investments: The company has entered into a definitive agreement to acquire six minority ownership interests from investment funds managed by Dyal Capital Partners. The company is entitled to receive $17.0 million of cash distributions annually plus 20% of cash distributions over this amount. In exchange, NGI will issue a 40% economic interest to Dyal funds through a combination of the issuance of ordinary shares and convertible notes. Following 2025, NGI will acquire the remaining interest in Dyal funds for a single redemption payment linked to the Portfolio’s financial performance over that time.
Key Risks: The company is susceptible to a variety of risks including risks related to the business and economic factors, amounts receivable from external parties, disruption in the supply chain, exposures to overseas operations, transactions and currencies, and mismanagement of cash flows. The company is exposed to financial risks, including market risks, credit risk, and liquidity risk.
Future Expectations and Outlook: The company preserves a decent balance sheet and seems to be well-positioned to capitalize on future growth opportunities. It also retains attractive valuation which is expected to support its future earnings and dividend profile. NGI has a track record of launching new products responsive to client needs and has a strong leadership team with deep resources across investment and non-investment functions. The company has a global client base which provides it a meaningful scale and diversification. This is expected to materially increase NGI earnings, AUM and introduce greater performance fee earnings component from diversified alpha sources. The company has broadened its shareholder base and presents the opportunity to improve long term liquidity in shares.
NGI has established new avenues for growth, positioning the company for future accretive, organic, and inorganic growth opportunities. It has a large addressable opportunity set across asset managers globally and retains a compelling financial rationale. Its attractive valuation and transaction structure are expected to be cash EPS accretive to its shareholders and promote long-term stability and growth of dividends.
Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)
Price to Earnings Multiple Based Illustrative Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: The business of NGI is centered around the needs of the clients and is focused on providing the best possible levels of investment expertise and service. It is known for its reputation for quality and integrity in the marketplace. It is focusing on finding ways to enhance its processes, systems, and products to differentiate from its competitors. As per ASX, the stock of NGI gave a return of 36.36% in the past three months and a return of 28.73% in the last one month. The stock is trading close to its 52-weeks’ low of $1.130, proffering a decent opportunity for accumulation. We have valued the stock using the price to earnings multiple based illustrative relative valuation approach and have arrived at a target price offering an upside of low double-digit (in percentage terms). Considering the attractive trading levels, decent returns in the past one month, decent long-term outlook and resilience of the business amidst the uncertainty, we recommend a ‘Buy’ rating on the stock at the current market price of $1.79, up by 3.768% on 25 August 2020.
NGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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