U.S.-listed private equity (PE) partnership KKR & Co LPis the latest name I have singled out as a long investment idea for Eklund Research over at Seeking Alpha.
Private equity powerhouse KKR’s price performance has been weak lately. Beyond price volatility, however, KKR is a high quality business generating double-digit client returns and attracting more and more capital.
KKR is different to its listed peers in that it puts the majority of its partnership capital where its mouth is: alongside clients in KKR deals and fund products.
And despite increased size and scope of activities, KKR has also managed to keep a beneficial alignment of interests with its public unitholders, compounding their equity at +20 percent annually.
Risks associated with a KKR partnership unit investment include dependence on future fund return performance and potential future compensation/governance issues at the partnership level.
Investors willing to accept price volatility should consider accumulating KKR’s common units as they are currently offered at a significant discount to intrinsic fair value.
The jury is still out on private equity partnership units as a publicly listed asset class. The partnerships’ business activities are often criticized and their GAAP financials leave you clueless.
This article will outline 1) why private equity units offer interesting optionality and 2) a simple framework for evaluating how the underlying private equity management businesses are implicitly priced.
While the underlying private equity business of KKR is found to trade at a significant discount to peers, industry giant Blackstone trades like its polar opposite at a significant premium.
Among the more credit focused private equity shops, Ares Management is at a big discount while Oaktree Management’s units are at a big premium.
Fortress Investment Management, the sample’s smallest partnership, trades for very little in relation to its asset base. Here Mr. Market is clearly very doubtful on the chosen hedge fund-specialization.
Yesterday we had a new long position idea published on SA: German apparel firm Hugo Boss.
If looking for a GARP-type investment (Growth at a Reasonable Price) make sure to have a look at our analysis and share or leave some feedback if you find the article interesting.
German premium/luxury menswear powerhouse Hugo Boss has lost its premium valuation in a period of slower business. Growth has stalled and margins dropped due to market weakness and firm-specific challenges.
While we should expect a tough 2016, recent years’ repositioning of the Hugo Boss core brand towards own retail stores will strengthen the group’s brand and franchise value longer term.
Strong financials, return on capital and free cash flow generation will help the group weather out current headwinds. Meanwhile, a high and sustainable dividend plus buyback potential provide some downside support.
Our Base case valuation indicates a fair value upside of +47%. Taking Bear and Bull case scenarios into account, the current risk-reward looks attractive.
Opportunistic investors are offered a high quality business at a reasonable price and should start accumulating shares. Once Hugo Boss starts to grow again, so will its valuation multiples.
Disclosure: Long Hugo Boss
The author is long Hugo Boss in the German stock market, where its ticker is BOS3. In the U.S. stock market, the group’s official U.S. ADR programme trades under the ticker BOSSY with a ratio of 5:1.
Eklund Research may increase or exit its position at any time.
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Marine Harvest, the bellwether of the global salmon farming industry, has successfully played an unsustainable dividend payout game to please its institutional owners and keep its share price up.
With a steep valuation after a multi-year rally, this stock is ripe for a correction. This article will argue why readers should (short-)sell Marine Harvest at current levels.
Bulls are right in that salmon farming constitutes a promising source of food production for the future. The industry is supported by steadily growing demand and R&D improvements.
However, salmon farming is still farming. And farming means a commodity business where Mother Nature will offer challenges along the way, in the case of salmon: biological and environmental issues.
Major shareholder John “Viking Raider” Fredriksen and insiders cast their vote by cutting their holdings. Further operational problems or a cyclical salmon market downturn will eventually push this stock down.
Now, if this sounds interesting feel free to study the full MHG article and comment over at SA.
Norwegian mobile-browser firm Opera Software (main ticker OPERA in Oslo, U.S. OTC ticker OPESF) might become Chinese very soon. But despite having board backing, financing and due diligence ready, the market is not yet buying this $1 billion-plus deal.
Implied probability of a successful closing of the cash tender offer was around 70% this Monday for an upside of almost +10% absolute return potential in one-and-a-half month (over +110% annualized).
The downside if the deal fails was in excess of -20%. U.S. interference through CFIUS is the potential elephant in the room that could make the deal blow up.
Now if this sounds interesting, please study the full article and comment over at SA.
Special situations provide uncorrelated returns
Special situations are nice in their feature of being highly uncorrelated to the short-term general trend of the stock market. Thus they may provide a source of uncorrelated portfolio returns (and losses!) for any investor with financing to put aside for a limited period of time.
The risk-reward in these situations can range from very unattractive to fantastic (in terms of upside versus downside). In addition, public tender offers involve so many moving parts that conditions and parties involved can end up biting you in the most unexpected ways along the way. So a word of advice: never consider a public M&A deal to be over until it is really over(!).
DISCLOSURE: The author is currently net long OPERA through the Oslo Stock Exchange. The Opera position is currently a tracking position of non-material size, both in absolute terms and in relation to the author’s portfolio. Eklund Research may increase or sell off its Opera position at any time.
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