Navigator Global Investments Limited

Company Overview: Navigator Global Investments Limited (ASX: NGI) provides investment management products and services to investors. It operates through its wholly-owned subsidiary Lighthouse Investment Partners, LLC., which acts as an absolute return funds manager for investment vehicles.

NGI Details

Improvement in AUM Performance Aided by Positive Investment Performance: The company’s business philosophy is based on diversification through strategic exposure to intelligently designed and actively managed portfolios of hedge fund strategies. It helps to create value for its investors, which is spread out across North America, Europe, the Asia-Pacific, and the Middle East.

Update on Assets Under Management:

As per a recent announcement, Lighthouse Investment Partners has reported its AUM at US$13.93 billion as of 30 June 2021, reflecting an increase from the levels of US$13.71 billion as of 31 March 2021.

• The total NGI Group AUM stood at US$20.9 billion as of 30 June 2021.
• Positive investment performance during the quarter has added US$350 million to the AUM.
• Net Outflows during the quarter stood at US$130 million.
• Decent performance from Commingled Funds with net inflows of US$130 million and positive performance impact of US$110 million during the quarter ended 30 June 2021.

Performance of Lighthouse Diversified Fund Limited as of June 2021 (Source: Analysis by Kalkine Group)

H1FY21 Performance Snapshot:

During the period, the company reported decent investment returns across its portfolios driven by positive performance across global long/short equity strategies.  

• The AUM increased by ~12% to US$13.2 billion as of 31 December 2020, compared to 30 June 2020 levels.
• Total revenue during the period stood at US$52.743 million in H1FY21, and EBITDA at US$15.504 million
• Uptick in performance fees by ~166% to US$9.8 million in H1FY21, compared to the previous corresponding period.
• It generated cash of US$17.8 million from operating activities during the period.
• Ended the period with a comfortable balance sheet with cash position of US$34.1 million and total debt of US$22.9 million. The debt comprises of US$20.1 million in long term debt and US$2.8 million in short term debt.

Trend in Cash Balance (Source: Analysis by Kalkine Group)

Completion of Acquisition of Dyal Capital Partners: The Group completed the acquisition of six minority interests in alternative asset investment funds managed by Dyal Capital Partners, on 1 February 2021. The acquisition is expected to be accretive on a cash earnings basis and the impacts of the acquisition will be included in the 30 June 2021 year ended results.

Interim Dividend: The company has declared an interim dividend of US 3.5 cents per share, with a record date of 25 February 2021. The payment was made on 12 March 2021. This translated to a dividend of 4.3915 cents in terms of AUD, considering an exchange rate of 0.7970.  

Initial Substantial Holder: As per a recent announcement, Blue Owl Capital Inc. and its controlled entities has become an initial substantial holder in the company with voting power of 19.995%, representing 40,524,306 fully paid ordinary shares.

Top 10 Shareholders: The top 10 shareholders together form around 65.64% of the total shareholding, while the top 4 constitute the maximum holding. Neuberger Berman, LLC [Activist] and Perennial Value Management Ltd., Inc. are holding a maximum stake in the company at 20.00% and 11.76%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company delivered a gross margin of 90% in H1FY21, and the net margin stood at 16.7%. There was a slight improvement in the cash cycle to 70.9 days on H1FY21, from 72.4 days in H1FY20.

Growth Profile and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is prone to the following given risks:

• COVID-19 Impact: NGI’s line of business exposes it to the impacts of the COVID-19 pandemic on the economic environment and similar macro-economic events. Such instances can impact the performance of the investment markets.
• Credit Risk: The Group is exposed to credit risk if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
• Interest Rate Risk: It is also exposed to interest rate risk given that it has a considerable amount of cash equivalents in the balance sheet.
• Currency Risk: The company is prone to volatility in the foreign exchange currency that has an impact on revenue, expenses, receivables and payables.

Outlook: The company has reported decent investment performance during H1FY21 and expects demand for its Equity portfolios and Platform Services going forward. It anticipates a modest EBITDA contribution from the Dyal acquisition and expects FY21 underlying EBITDA to be in between US$28 to US$31 million. The Group plans to release its FY21 annual results on 19 August 2021.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Source: 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: Perennial Value Management Limited has undergone a change of interests in the company and has increased its voting power to 11.76% on 28 April 2021. As per ASX, the stock of NGI is trading below its average 52-weeks’ levels of $1.245-$2.320. The stock of NGI gave a positive return of ~6.32% in the past nine months and a negative return of ~26.31% in the past six months. 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 believe that the company can trade at a slight discount to its peer median P/BV (NTM trading multiple), considering the impact of COVID-19 on the financial markets, prevalence of volatility and net outflows. For this purpose, we have taken peers such as MA Financial Group Ltd (ASX: MAF), Pendal Group Ltd (ASX: PDL), IOOF Holdings Ltd (ASX: IFL), to name a few. Considering the expected upside in valuation and current trading levels, improvement in AUM levels, decent cash balance, completion of acquisition of Dyal Capital Partners and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.645, down by ~0.90% (as on 20 July 2021, 11:57 AM (GMT+10), Sydney, Eastern Australia).

NGI Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

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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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