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04 May 2023
Alternative future, present opportunity
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Alternative future, present opportunity
Eurazeo (RF:EPA), 0 | Eurazeo SE (RF:PAR), 0
- Published:
04 May 2023 -
Author:
Vaysselier Nicolas NV -
Pages:
47
Can a transformation story be a good opportunity for money? Eurazeo has set out to change itself from an investment company to an alternative asset manager. If the company is pro-active on divestments, MandA and buybacks this can happen fast. We dive into the AM businesses, buybacks, MandA opportunities and more besides. With several catalysts ahead we would expect the discount to NAV to progressively shrink and thus we initiate on Outperform.
Aggressive action on the balance sheet to accelerate this shift
Our work shows that Eurazeo''s asset management business is well positioned to grow organically. But without action on the balance sheet this transformation will take many years. The management is willing to take action by i) reducing the size of the balance sheet portfolio, ii) using the proceeds from exits for dividends and buybacks and iii) using this cash for meaningful MandA. Should they deliver on exits, we expect Eurazeo to have EUR1.8bn of firepower for MandA in 2025, which could bring the value of the asset management business to represent ~45% of the EV, from 25% today. There are thus material catalysts in the medium term to catalyse a rerating.
Investment portfolio: a lot of downside is priced in
With the shares at a c.50% discount to NAV, we think the market is undervaluing the asset management business and focuses on mark-down concerns on Eurazeo''s own portfolio. There are reasons to be prudent on the Growth portfolio (25% weight) given the number of unprofitable companies, but the share price arguably already implies more than a complete write-off of the value in Growth. As realisations and buybacks are delivered, the valuation discount should reduce.
Valuation and rating
As with the rest of our coverage, we use a SOTP where we value management and performance fees separately. We value Eurazeo post-tax FRE on 19x and the IM Global FRE on 10x and PRE on a 40% discount to the FRE multiple. We value the investment portfolio ex-Growth at a...