 I’ve just spent a bit of time working through this one. As others say, it’s not easy to unpick this stock as reading the financials and various presentations I often felt like I was reading marketing material. However I would say that this is fairly typical of the Private Equity industry…
In short, this stock is a gateway into the Apax private equity funds that are not open to private investors. Moreover, the PE investments are predominately in three funds:
APAX IX: 2016 vintage, now “harvesting221; stage i.e. winding down and distributing
APAX X: 2020 vintage, now “mature” stage, i.e. funds fully invested
APAX XI: 2023 vintage, now “investingR21; stage, i.e. still ramping up
The holdings AGA disclose are held (mostly) in these funds, with quarterly revaluation of all the companies performed “bottom up” via the usual methods. Given that these funds are generally held by large wholesale investors, I would opine that the valuation process is “fairly” robust, however something that should be taken with a grain of salt, seeing as one of the holdings [Vyaire] filed for Chapter 11 this year, and the valuation went from €27m [YE 2023] to zero [HY 2024].
While 83% of AGA is in PE, 17% is in “Debt Instruments” which I have seen mis-characterised as quasi-liquid bonds, but in fact are syndicated loans which are much less liquid despite what you might read. The advantages of this part of the portfolio is that they pay regular coupons to AGA, versus the more unpredictable PE distributions, which helps support the size and frequency of the dividend. The disadvantage is that often AGA has exposure to the same names in the PE and Debt portfolios. [Vyaire for instance, where another ~€10m was lost in Debt in H1, over and above the €27m loss in the PE book]
So, that all said, looking ahead I think this one looks in OK shape. With APAX IX winding down, then it’s X and XI that will drive the valuation going forward. The just released NAV for YE showed X taking a drawdown, not a huge surprise given ongoing mixed market conditions which Apax attribute to their retail and healthcare investments. EBITDA multiples have come down the past few years, however are showing signs of stabilisation. AGA has cash at its highest level (£103m) for a few years, anticipating XI calling for capital soon, which I think is the key.
AGA has its highest allocation to XI [~€673m, versus ~€418m to X]; in other words, the dry powder AGA has generated from high multiple EBITDA exits and debt sales from the “harvesting221; funds, is about to invested in much larger amounts that they have ever done into much lower EBITDA multiple investments. The market is too focused on the recent NAV drawdown and not giving enough thought to the runway for the new XI fund.
The dividend cover from operating cashflow I see around x1.5 on average the past four years, the RCF is usually undrawn [although occasionally drawn and repaid promptly to cover short terms liquidity needs], and the buyback is small positive. |
Oakbloke is a clown. He's one of the ignorants of their own ignorance, so writes all kinds of BS with a lot of self conviction. |
I looked at some of the holdings and quite honestly I didn’t understand what they all do. Reminds me of New Media Spark (going back a bit), but that was ‘thorny’ to put it mildly. |
OakBloke, lol. Disaster area, as VSL & DGI9 show - he's like the kiss of death.
(Which isn't to say APAX might not be value down here, but OB sprays wildly, and is a very poor analyst). |
Over last three years this has been a truly appalling investment, though it does pay a decent dividend.
What will change?
Oakbloke's note - also linked above- is well worth reading. He likes APAX because he wanted a software/services provider and this gives him that exposure within a large folio of underlying companies. Plus-
" So I decided to look for consistent outperformance according to the rule of 40%. Add your EBITDA margin and your EBITDA growth and if it is consistently above 40% then it is highly attractive.
APAX share their EBITDA growth and I have inferred a 25% EBITDA margin (how else can you deliver growing earnings and dividends over 5 years unless you are generating at least that much). On that basis even in the thin years APAX sitting at or above the rule of 40. In a good year the EBITDA growth alone is above 40% - let alone the profit margin!
So APAX feels like a safer choice, even if it not wholly SAAS or software, and contains some service-based businesses too."
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There, if he is right, this will bottom at some point and the subsequent run back up could be highly profitable? Discount is now 34%. Maybe one to keep averaging down.
NAI - I hold. |
All quiet here Finals 4 th March |
Write up on #APAX by Oak Bloke |
Apax carves out S&W accountants from Evelyn wealth managers -
Apax Global Alpha contributes £23.4m of a reported £700m price tag for Smith & Williamson, the accountancy arm spinning off from Evelyn Partners... |
Apax Funds to acquire Evelyn Partners - |
Thanks speedsgh. I suppose once sentiment changes it may accelerate potential gains with less shares in issue. Just a speculative holding for me, but (the whole sector?) seems to be very out of favour at the moment. |
@Mister MD - That's because actions speak louder than words and the APAX buyback programme is being implemented in such a half-hearted manner that it is unlikely to have any meaningful effect.
The first buyback was undertaken on 27 June. The terms of the programme are as voted for at the most recent AGM (1/5/24) and limit buybacks to 14.99% of the Company's issued capital (73,616,005 shares). The Distribution Pool which earmarks funds available for buybacks was seeded with EUR 30m.
To date APAX have bought back 2,136,021 shares (at a cost of approx EUR 3.67m) which represents just 2.90% of the maximum 73m+ shares that can be purchased. That is since 27 June, so over nearly 5 months.
Purchases are being undertaken by Jefferies independent of the company but within parameters set by the company in the agreement with Jefferies. AFAIAA these parameters have not been disclosed to shareholders but are likely the reason behind the scheme's relative ineffectiveness.
To be fair, it should also be noted that many other trusts/companies have been buying back shares over the same period and even in cases where buyback programmes have been implemented more rigourously, it has tended to have limited effect on the share price. |
The share buybacks don't seem to be having much effect on the shareprice ? |
@makinbucks There are different kinds of PE strategies. Not all of them require "significantly grow revenue and EBITDA" or indeed high levels of debt.
What shouldn't be a debate is that an investment trust is required to distribute a high % of the income it declares - I believe it's 85%. So if Apax is making capital gains and receiving dividends, then these must be mostly distributed to shareholders. That doesn't preclude an IT from having uncovered dividends, but even then that's a sign of confidence as no company or IT wants to reduce dividends.
And for a fund targetting mid-teens returns, a 8% "natural yield" is certainly the minimum to be expected from a mature, cash-generating portfolio. |
@SKYSHIP - Have replied to your DM |
craigso, I think that is misguided. PE investors look for companies that can significantly grow revenue and EBITA. To allow that to happen they gear the investee companies. Cash flow generated services the debt and funds the growth, dividends restrict the growth opportunity. After a period of growth the PE investor sells the asset for a capital gain. If a PE IT is paying a dividend it is doing so to smooth the distribution of the capital gains. Whether this is good practice or not is a debate.
Apax is different, unique in fact, in that alongside the PE it has the debt and equity
derivatives portfolio which is there to provide liquidity and income. That gives it a natural yield which other PE IT's don't have but lets not kid ourselves that there is an 8% natural yield |
Message for speedsgh.
--------------------
Hi there - a request. Would you mind updating the Header of your ASLI thread.
You seem to have moved on; and perhaps now have no interest.
If so, I will start a new thread with updated Header info re the wind-up and showing 27/09 Interims.
Would prefer you update; or provide permission for me to proceed. |
Another I've been watching for a while and bought in today. Think we will see quite a move once we break the downtrend and happy to receive the very attractive dividend in the meantime :) |
There are many private equity type investment trusts trading on these sorts of discounts. Sooner or later the discounts will narrow.
I'm not really able to judge which PE ITs are better than others - I'm certainly not going to chase recent winners under the assumption that they are "better" - but the one confident enough to give me an 8% yield (+ more via buyback) is certainly worth holding. |
speedsgh, same as yourself. I have it as a diversifier within a balanced portfolio. With the share buybacks, the discount should narrow and an 11p fixed dividend provides a good yield. Personally, I can't fully explain why the share price has been sliding over the past 3 years but am happy to have had the opportunity to buy at current levels. |
Performance the last 3 years has been disappointing but prior to that performance since listing wasn't bad. I'm inclined to think the share price is nearer the bottom and am therefore happy to stick with them and collect the dividends until their performance & rating have improved. |
Very interesting, thanks. They could be sat on it for a long time tho, APAX been a serial underperformer. |
"That’s left them [APAX] on a 33% discount to their net asset value of 213p in June, which has ‘disappointed’ long-standing backer James Hart. As the former investment director of Witan Investment Trust, Hart admired Apax Partners and took a cornerstone stake when the investment company floated.
Following Witan’s merger this month with rival Alliance Trust, Hart has joined its fund manager Willis Towers Watson. The 5% stake in Apax has transferred to the now £5bn Alliance Witan (ALW) and although it does not fit its investment strategy, Hart said it ‘will not be sold until we have realised full value for Alliance Witan shareholders.’
That’s good for Apax. If Alliance Witan is not a forced seller, it should remove any ‘overhang̵7; weighing on the shares." |
Private equity is picking up: Buy this ‘hidden gem’ -
This is a version of an article published today in the Telegraph’s Questor column... |
Tipped by Questor in the Telegraph today. |
24m shares could only be sold off via a placing, even if the combined group wanted to do so, which is unlikely IMO. |
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