Until recently, public market investors seemingly could not get enough of private capital investment. Almost every new listing of alternative managers specialising in private capital had done well. But the market is clearly getting more discerning. London-listed shares of Bridgepoint Group and Petershill Partners have performed poorly of late. That shows that something more than access to private capital is required to excite investors.
Sweden’s EQT may well have that edge. Its IPO in September 2019 has not disappointed. Even after a recent dip, EQT’s Stockholm-listed shares have nearly quadrupled in value. On a forward earnings multiple of 42 times EQT sits above its more mature rival Partners Group of Switzerland. Petershill, which opts for minority stakes in alternative managers, manages half that earnings ratio.
EQT prefers to actively manage its portfolio companies. A growing preference for long-term (decades) holdings, as opposed to the more typical five to seven-year cycle, sets it apart. Its reputation for actively improving its portfolio companies, rather than simply slashing costs, means its IPO exits are usually well received by buyers, thinks UBS.
Acquisitions should boost growth and diversify its exposure. Its assets under management benefited by €9bn from last year’s acquisition of real estate specialist Exeter Group in the US. This move filled a sector gap for EQT, as will the more recent and much smaller takeover of early stage Dutch healthcare fund LSP. Forecasts of €1.2bn of annual free cash flow through 2023 mean EQT has plenty of financial firepower.
Not everything is rosy. Swedish watchdogs have noted “a delayed disclosure of inside information” relating to share sales by EQT executives back in September, which the company denies. Six of its senior team have made billions just from owning its shares. Moreover, the surge in real bond yields is making markets fret more about growth stocks, including listed alternative managers. In this regard, a premium valuation helps it less.
But EQT looks to have the right growth strategy coupled with a sensible approach to how it manages its portfolio. It should continue to maintain its premium valuation and outperform its peers.
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