Skip to main content

Is it time to go "private" ?

It has been exactly 2 years since much hyped Blackstone IPO at $31 which marked the peak of credit bubble. I myself got carried away in the hype and in fact bought into blackstone IPO only to have significant losses - since then I have learned my lessons not to believe in hype.

So why am even writing and considering "private equity" companies again ? In last two years since BX IPO, much of the hype has been gone along with bubble time excesses. There are almost no private equity deals in last 12 months (as against at least one deal getting announced every Monday morning in 2006-2007). In a way this is good for PE industry so they can focus on their portfolio companies and make some real decisions to help them survive and thrive when economy recovers.  The flood of redemption seen 6 months back have slowed down considerably and in fact there are new funds being raised (albeit smaller in size). Many of the PE companies have significant "dry-powder" (aka cash ready to invest) and hence should be able to take advantage of depressed valuations. This was evident from Fortress deal to buy debt of around $600 million on New-York real estate development project. When the economy returns to normal state of growth, these companies would recover their valuations and start paying decent dividends for yield of about 5-10% (at current stock prices)

Here are some of the picks:
  • Blackstone (BX) at around $10
  • American Capital (ACAS) at around $3
Here is my stock pick of week in private equity industry:

Company: Fortress Investment Group LLC
Symbol: FIG
Recommended buy price: $3 to $ 3.3
Target price in 12 months: $5
Background: 
Fortress Investment Group LLC (Fortress) is a global alternative asset manager that raises, invests and manages private equity funds and hedge funds. Fortress earns management fees based on the size of its funds, incentive income based on the performance of the Company's funds, and investment income from its principal investments in those funds. Its offering of alternative investment products includes private equity funds and hedge funds. It has close to $26.5 B AUM

Selection criteria:
One of the pre-eminent PE group. With management fees of 1-2% for AUM, it has steady revenues of $500 M just from management fees. Recently it raised close to $200 M by issuing stock at $5 and many insiders bought during this offering. It is selling at discount of over 35% from its recent offering. Stock is down by nearly 90% from its peak of over $33 in 2007. It used to pay dividends of over 20 cents per quarter. Once company balance sheet improves and economy recovers, I am expecting it to start paying dividends in the range of 25-40 cents per year generating yield of at least 8% at current price. Finally it is "survival" theory. Since it has survived worst of credit cycle in last 9 months, it has excellent chances of surviving in whatever comes next and comes out ok. 

Have a great Independence Day Weekend and good luck !

/Shyam

Comments

Post a Comment

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...
Post a Comment
Read more

Elections and Rotations!

2024 will be known as an important year in terms of elections (97 nations covering half the population) across the major countries in the world. We are only halfway thru the year and already some key nations have gone thru elections and voters have indicated their preference for change (in a way). Let's take a look at few. India - Modi's BJP started with lots of enthusiasm with slogans of "Modi ki Guarantee" and "400 paar" (more than 400) seats (out of 543). Indian voters (which I considered one of the most smartest) gave reality check to Modi and BJP by reducing BJP count to 240 (from 303 in previous parliament) forcing it to form coalition government. I have lot more detailed hypothesis on these results (but not here). Almost everyone (including me) got their predictions wrong and lost some friendly bets. Indians want balance between "Strong, Prosperous, Proud" India with "Inclusive, Employment and Harmony". Modi and BJP are quick learn...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more