Navigator Global Investments Limited

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-strategy 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 

Record EBITDA and Strong Balance Sheet: 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 9 June 2020, the market capitalization of the company stood at $232.68 million. FY19 started with a peak in Assets Under Management of US$16.7 billion. This was a result of an excellent year of asset raising by the Lighthouse team as well as the transition of US$5.4 billion of client relationships from the Mesirow Advanced Strategies (MAS) transaction. During the year, management fee revenue stood at US$105.4 million, reflecting an increase of 40% on the prior year. The key driver of this increase in management fees was the increase in average total AUM. The company earns performance fees on selected Commingled Funds and Customized Solutions portfolios. During the year, Performance fee revenue was US$1.1 million. The investment management operating activities of the group earned a record EBITDA of US$37.7 million and remained focused on executing on both its investment and business strategy. The Board determined an unfranked final dividend of US 9.0 cents per share, bringing the total dividend for FY19 to US 17.0 cents per share, reflecting an increase of 6% on the prior year.

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 strong 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.

The significant volatility and market dislocation led to negative investment results; however, investment performance saw improvement in the second half of the financial year. The approach of NGI is consistent and seeks to invest in differentiated strategies by partnering with specialized investment talent. It continues to see opportunities for new and increased mandates across the globe and is building new relationships. In the longer term, the company is likely to benefit from good opportunities in its promising markets in Asia. 


FY19 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)

Strong Balance Sheet and Increased Profitability: During 1H20, gross margin of the company witnessed an improvement over the previous half and stood at 92.4%, up from 90.9% in 2H19. In the same time span, net margin of the company went up to 25.1% from 21.7% in 2H19. The improvement in gross margin and higher net margin indicates that the company is managing its costs well and is capable of converting its revenue into profits. During the half-year, NGI reported increased profitability with EBITDA margin of 36.4%, up from 30.4% in 2H19. During 1H20, Return on Equity of the company stood at 6.3%, higher than the industry median of 3.9%. This indicates that the company is well managing the capital of its shareholders and is capable of generating profits internally. In the same time span, current ratio of the company stood at 4.21x, higher than 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 half, the company also reported a healthy balance sheet with a Debt/Equity ratio of 0.08x, lower than the industry median of 0.58x. In the same time span, Assets/Equity ratio of the company stood at 1.14x as compared to the industry median of 4.51x. 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 at 31 December 2019, Lighthouse is managing 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, relative to the same period in the prior year. The trend in redemptions 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. The decent financial and operational performance enabled the Board to declare an unfranked dividend of US 8.5 cents per share.

Despite the ongoing impacts of COVID-19 on the business and global markets, NGI reported a total AUM of USD 11.99 billion as of 30 April 2020. The net AUM flows for April 2020 reflect the start of the identified redemptions.


1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Growth Opportunities: NGI finished 1H20 well with a strong investment performance in the December 2019 quarter. This provides a good base to build on for the company. The company is expecting to reap the full benefits of the cost rationalization and is progressing on building its platform services client base. NGI is broadening its global distribution reach by building new relationships and leveraging its existing relationships. It is providing a high level of service to its clients with quality and timely reporting on their investments. The proactive approach of the company is ensuring the fulfillment of all the investment needs of the clients. It has an increased focus on the smooth integration of the MAS clients into the existing Lighthouse operations and in providing innovative solutions to existing and prospective clients. Due to its strong balance sheet and position in the market, the company is presented with increased opportunities.

The trends in the markets are uncertain and are likely to be unpredictable in the short term. While the timing and scale of these extraordinary cycles can be difficult to predict, they are indeed a regular part of the investment landscape. Thus, the company has a disciplined asset allocation risk, which is the best way to navigate the way through the crisis.


Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)



Price to Book Value Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Business of NGI is centered around the needs of 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 11.24% in the past one month and is trading close to its 52-weeks’ low level of $1.140, proffering a decent opportunity for accumulation. We have valued the stock using a price to book value 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, positive 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 $1.535, up by 6.969% on 9 June 2020. 
 

NGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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