Company Overview: Navigator Global Investments Limited (ASX: NGI) provides investment management products & services to investors through its wholly owned subsidiary Lighthouse Investment Partners, LLC. Lighthouse Group is the only reportable segment under which the company operates. The company provides services and solutions under three strategies – Commingled Funds (Diversified multi-strategy & Global Long/Short equity fund); Customised Solutions (caters to investors of significant investment size); Platform Services (provides clients with allocation to hedge fund assets, benefits of a managed account structure).
NGI Details
Acquisition of Quality Portfolio Holdings Aids NGI: Navigator Global Investments Limited (ASX: NGI) is engaged in providing investors with investment management products and services. The market capitalisation of the company as on 12 January 2021, stood at ~$292.67 million. The company had announced in August 2020, that it entered into a proposal to acquire a portfolio of strategic assets from funds managed by Dyal Capital Partners. This positions the company to gain further market share, with a holding of quality portfolios under its disposal. NGI will acquire the portfolio in a structured transaction and will initially receive a minimum annual portion of the cash flows from the portfolio in exchange of 40% economic interest in Navigator. NGI will make an additional single payment after five years to acquire the remaining interests in the cash flows delivered by the portfolio. The acquired portfolio has a rich history of delivering decent returns through various market cycles.
The company’s operations have been impacted by the COVID-19 pandemic in the short term, however, NGI will look to leverage on opportunities created by the disruption in the equity and global markets. It will look to pursue new clients in both its equity-based strategies and platform services.
NGI delivered resilient financial results in FY20, despite the difficult business environment created by the pandemic. It reported revenues of US$101.50 million in FY20, as compared to US$114.86 million in FY19. Management fee revenue decreased by 17% to US$87.5 million, compared to pcp. The reduction can be attributed to the decrease in AUM by 15% in FY20 from FY19 levels. However, there was an increase in the performance fee revenue to US$5.6 million during the year, owing to decent investment performance in the second half of FY20. EBITDA was at US$30.5 million from US$37.7 million, during the same period under consideration. Profits declined by 32% to US$18.14 million in FY20, from US$26.84 million in FY19. The cash position of the company stood at US$27.03 million as on 30 June 2020.
FY20 Financial Performance (Source: Company Reports)
Mixed Investment Performance: NGI’s global equity strategies showed resilience during the difficult period of FY20 and delivered positive returns. Whereas the global indices witnessed negative returns during the same time frame, demonstrating the company’s quality equity products on offer. However, the multi-strategy products delivered disappointing performance during this tough period.
Decent Increase in AUM during Q1FY21: The company reported an increase in AUM to US$11.99 billion as on 30 September 2020, from US$11.77 billion on 30 June 2020. Net outflows from MAS portfolios and Lighthouse’s multi-strategy funds were offset by decent performance across all the portfolios during the September quarter. There was a net outflow of US$210 million, and a performance improvement of US$430 million during the September 2020 quarter.
Improvement in AUM in Q1FY21 (Source: Company Reports)
Strong performance in Q2FY21: As per a recent announcement, the company provided an update on its quarter ending December 2020 and reported strong investment performance with higher than normal performance fee revenue to be recognised in December. The decent performance in the December quarter has enabled NGI to deliver significant fee revenue for the six months to 31 December 2020. NGI expects that the improved performance fee will add ~US$4.5 million to EBITDA for H1FY21.
Details of Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 50.85% of the total shareholding. McGould (Sean) Ltd is the largest shareholder in the company, with a percentage holding of 11.99%. Eley Griffiths Group Pty. Ltd. holds the second maximum interest in the company at 9.08%.
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
Key Metrics: The company delivered decent financial performance, keeping in view the difficult business environment during the year. It reported gross margins at 90.3% during FY20, compared to 91.5% in FY19. Net margin was at 17.9%. ROE in FY20 stood at 8.8%, higher than the industry median of 7.9%. The company also reported an increase in the debt-to-equity ratio to 0.12x. However, the ratio was lower than the industry median figure of 0.53x. There was an addition of lease liabilities during the period to US$23.16 million. Long-term trade and other payables reduced to US$0.21 million from US$2.68 million in FY19. The cash cycle increased to 58.2 days from 49.8 days, during the same period.
Key Margins (Source: Refinitiv, Thomson Reuters)
Key Risks: The company operates in a sector that takes cues from economic activities and business prospects of companies. The disruption in business performance across sectors due to the outbreak of the COVID-19 pandemic impacted NGI's performance too and thus there was a decrease in AUM by 17% to US$11.8 billion in FY20, from US$14.2 billion in FY19. The company expects some further redemptions, going forward, and anticipates revenues of US$82.5 million in FY21, which is a decrease of ~20% on FY20. It also expects the average management fee to be lower in FY21, with a shift of customer preferences towards platform services and customised client AUM, which generally has lower fee rates. NGI’s business has significant exposure to overseas operations and transactions, and as such is exposed to fluctuation in the foreign currency. It also operates in a sector where there is stiff competition for clients and market share. NGI will continue to look to retain and add new clients, by embracing new technologies and providing superior client experiences.
Outlook: Given the volatility induced in the economic environment by the COVID-19 pandemic, markets have shown signs of stabilisation over the past few months. Lighthouse will continue to focus on delivering decent returns to its clients. The market disruption has created opportunities to enter into equity strategies and other investment products with the potential for attractive returns. The company will look to pursue new clients across its strategies and platform offerings and explore new investment opportunities for the portfolios.
Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)
P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
Stock Recommendation: NGI has reported a decent increase in AUM in Q1FY21 on the back of decent investment performance of its portfolio. It also delivered strong investment performance in the December 2020 quarter and expects significant performance fee revenue during the period. As per ASX, the stock of NGI is trading below its average 52-weeks’ levels of $1.130-$3.640, proffering a decent opportunity for the investors to enter the stock. The stock of NGI gave a return of 13.63% in the past three months and a return of 37.25% in the last six months. On a technical analysis front, the stock of NGI has a support level of ~$1.446 and a resistance level of ~$1.945. 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). For the purpose, we have taken peers such as Pendal Group Limited (ASX: PDL), Pinnacle Investment Management Group Limited (ASX: PNI), EQT Holdings Limited (ASX: EQT), to name a few. Considering the current trading levels, increase in AUM aided by portfolio performance, decent investment performance in Q2FY21 and acquisition of strategic portfolio holdings, we recommend a ‘Buy’ rating on the stock at the current market price of $1.750, down by 3.048% as on 12 January 2021.
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NGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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