Results analysis: NB Private Equity Partners

• NB Private Equity Partners (NBPE) has released its 2022 Annual Financial Report and 31/03/2023 Monthly NAV Update. Over the 12 months to 31/12/2022, NBPE saw a -7.5% NAV total return, with the decline driven by changes in quoted holdings and FX. The private investment portfolio rose by 4.4% over 2022 on a constant currency basis, a result of a strong underlying operating performance from companies in the portfolio, with average 14% LTM revenue growth and 12% LTM EBITDA growth over 2022
• Having announced the 31/03/2023 NAV of $28.20 (£22.81), NBPE has seen a NAV total return of 1% over the first three months of the current year, including the dividend paid in February 2023. Most of the private investments remain valued at 31/12/2022, and so this NAV growth has been driven by public market investments, which have appreciated by approximately 11%.
• NBPE benefitted from $143 million of announced realisations during 2022. In the first three months of 2023, there have been $27 million of announced realisations, including a realisation of one public stock position, the partial sale of one portfolio company, and continued realisations from the legacy Income portfolio. This leaves NBPE well positioned to take advantage of investment opportunities, with $308 million of cash and undrawn credit line available.
• At the current price, the shares trade at a discount to the 31/03/2023 NAV of 31%. The board have stated that in their view the current discount materially undervalues NBPE’s portfolio, balance sheet strength and prospects. They note that in October 2022, NBPE entered into an agreement with Jefferies, which allows them, in their sole discretion, to repurchase NBPE shares based on certain criteria. To date, no shares have been repurchased and the Company will be renewing its agreement with Jefferies, including updating the relevant repurchase criteria.
• The Chairman, William Maltby, states that “NBPE is well positioned to deliver long-term value for shareholders”. He believes the company’s strong financial position and its investment model enables NBPE to be highly selective about where and when it invests. He observes that the managers with whom NBPE co-invests have a number of tools at their disposal to unlock and drive long-term value … away from the glare of the public markets. Importantly, as owners, private equity managers are also able to adapt quickly to change, a great strength in the current environment.

Kepler View

2022 was a challenging year for most listed equity markets. However, NB Private Equity Partners' (NBPE) private equity portfolio has continued to deliver strong revenue and earnings growth, which has underpinned their valuations somewhat despite valuation multiples reducing (“which declined by over two turns”). NBPE also has investments in some listed investments (18 as at 31/12/2022, representing 12% of NAV), but only because previously private investments have floated. The timing of sales of these investments is controlled by the underlying private equity managers, but it is encouraging that so far this year, valuations have rebounded somewhat.

With $1.4 billion invested across 93 private companies, NBPE’s portfolio is well diversified by company, manager and sector. The portfolio is built from the bottom up, investment by investment and is focused on two key themes: expected long-term secular growth, and/or companies and business models with lower expected cyclicality. Activity has slowed over 2022, with NBPE completing only two new investments (totalling $41m in 2022), and the Chairman states that the board do not expect the pace of new investments to pick up materially in the near term for NBPE. NBPE’s co-investment model means that it does not have to commit to investments a long way in advance, and so if the pace of realisation activity does not pick up, this does not present any problems for the trust.

The board have re-affirmed their commitment to the dividend policy. The historic dividend of $0.94 per share is equivalent to a dividend yield of c. 5% at the current share price and exchange rates. The discount to NAV is at historically wide levels, which does not reflect the strong historic performance relative to equity markets (see table below). Certainly there are uncertainties on the horizon, but the portfolio is well diversified, and as the Chairman states, private equity backed companies are generally well equipped to deal with just this sort of uncertainty. Private equity is a long term investment asset class, but in ascribing such a wide discount to NAV, perhaps the stock market is focussing too much on the short term? The board adjusting the buyback arrangements with its broker may see more activity in this regard, which could provide support to the discount at the current level.

NBPE NAV & SHARE PRICE RETURNS

Source: Neuberger Berman, *Reflects cumulative returns over the time periods shown and are not annualised.

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