VGI Partners Limited

VGI Details

Proposed Merger with Regal: VGI Partners Limited (ASX: VGI) provides investment management services to VGI Partners Master Funds, VGI Partners Offshore Fund, VGI Partners Asian Investments Limited (VG8), and VGI Partners Global Investments Limited (VG1).

• Merger Documentation: On 31 January 2022, VGI signed a non-binding merger term sheet with Regal Funds Management Pty Limited (ASX: RF1) (“Regal”).
• Leadership Changes: VGI announced the resignation of CEO, Jonathan Howie, who will remain with the company to support the proposed merger and related activities in the coming months.
• Proposed Offer: Under the proposed offer, VGI would acquire ~100% of Regal and issue new ordinary shares to the Regal shareholders as a consideration in VGI. The combined entity would be ~60% owned by existing Regal shareholders and ~40% by existing VGI shareholders at the time of merger completion and post adjustment of liquid assets, cash, and other investments.
• Change in Name: VGI may rename itself and change its ticker symbol to reflect the combined entity upon or after the closure of the proposed deal.
• Potential Benefits: The proposed deal would merge two hedge fund managers and form a strengthened entity providing alternative investment strategies with combined FUM (funds under management) of over ~$6 billion.
• Regulatory Approvals: The proposed merger is subject to due diligence by both parties, entering a definitive agreement, Board approvals, and VGI shareholder approval.

Performance Update & AGM November 2021 Highlights:

• VGI held FUM worth $2.5 billion as of 31 December 2021 versus $2.8 billion as of 30 September 2021. The decline in the FUM during Q2FY22 was due to ~$0.2 billion redemptions and underperformance of the Global strategy.
• VGI has increased investment in distribution, marketing, and technology during the period. It has expanded its shareholder and adviser engagement teams. In a move to resolve the issue of discount to NTA, VGI has redeemed and cancelled over ~26 million shares (~6.5% of VG1 issued share capital) in an on market buy-back since August 2020. It also targets a fully franked dividend yield of 4% per year.

Key Financial, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces a variety of financial risks such as market risk (interest rate, price, & forex rate changes), liquidity, and credit risk. It is exposed to volatility in financial markets, macro -economic, and regulatory policy changes.

Outlook:

• Period of Exclusivity: VGI has established six-weeks of exclusivity and arrangement for Regal on customary binding terms and a mandatory condition to inform VGI upon receiving a competing offer.
• With the help of external advisers, VGI is reviewing the NTA issue and intends to furnish recommendations to the Board in Q1CY22.
• The company continues to invest in portfolios of high-quality firms with robust growth potential.

Stock Recommendation: The stock of VGI gave a positive return of ~1.67% in the past three months and a negative return of ~38.22% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.060 - $8.540. On a TTM basis, the stock of VGI is trading at an EV to EBITDA value multiple of 3.6x lower than the industry (Financials) median of 6.3x, thus seems undervalued. Considering the current trading levels, low debt-to-equity ratio, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $4.250, down by ~5.765%, as of 24 February 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

VGI Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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