GP Investments

Nau Securities Limited
2 Eaton Gate
London SW1W 9BJ
United Kingdom
t +44 20 7947 5510
f +44 20 3043 0009
www.nau-securities.com
Pedro Baptista
Investment analyst
t +44 20 7947 5512
[email protected]
Romas Viesulas
Specialist sales
t +44 20 7947 5515
[email protected]
GP Investments
14 April 2015
GPIV33.SA | GPIV33:BZ
Sector
Holding Companies
Price (R$)
5.8
Number shares (m)
127.1
Market Cap. (US$m)
240
Max | Min 12m (R$)
6.2 | 3.7
Beta | Volatility
1.1 | 47.6
Av. Daily Volume (US$m)
1.2
Free Float (%)
70
Consensus distribution (R$)
Buy (4 Buy, 0 Neutral, 0 Sell), PT 6.4 (6.0 – 6.7)
US$m
RIC
% own.
Market
% NAV
Target
Magnesita
MAGG3
7.1
18
5
18
BHG
BHGR3
8.3
32
9
32
SPCE
31.7
37
10
48
TEMP3
10.4
15
4
15
102
28
113
0
Spice
Tempo
Listed Assets
LBR
San Antonio
Centauro
4.9
0
0
20.1
0
0
0
8.1
65
18
65
BRZ Investimentos
83.1
3
1
24
Allis
23.8
11
3
11
Real estate
40.9
28
8
28
EBAM
33.3
31
9
31
Beleza Natural
14.0
17
5
17
Par
18.0
18
5
36
0
0
0
Unlisted Assets
174
48
212
GAV
276
77
326
-35
-10
-35
118
33
118
359
100
409
Other
2.8
3.2
8.8
10.0
52%
73%
-119
-169
-33
-41
Source: Bloomberg, Nau Securities.
GP Investments!
MAV 200d!
7!
R$!
MAV 50d!
6!
5!
4!
3!
2!
Apr-15!
Feb-15!
Oct-14!
Dec-14!
Aug-14!
Apr-14!
Jun-14!
Feb-14!
1!
Oct-13!
Apr-13!
Feb-13!
Oct-12!
Dec-12!
Aug-12!
Apr-12!
Jun-12!
Net cash (debt)
A track record of superior returns
We believe that the potential for hidden value at GP is considerable,
Other financial assets
given holdings such as Spice Private Equity Ltd., Par Corretora,
NAV
Centauro, Beleza Natural and Tempo. As such, we raise our target NAV
Per share (US$)
per share from R$9.6 to R$10.0, to reflect a valuation for Par Corretora
Per share (R$)
based upon sector multiples, a still conservative value for Spice Private
% above current share price
Equity Ltd’s US$-denominated cash pile based upon a 25% discount to
Discount (R$m)
NAV and a valuation for BRZ based upon a ratio of 2.0% of AUM. We
% discount
have valued all of the other assets in the portfolio on the same basis as
that used by GP in its calculation of NAV. The latter approach may also
prove conservative in time, given the recent track record in generating
superior returns with respect to Sascar and BR Towers and the positive
GP Investments!
operating performance of the likes of Centauro and Beleza Natural. GP
generated gross proceeds of US$213m through Sascar and BR Towers,
equivalent to more than 80% of the firm’s market capitalisation. These deals
allowed GP to pay-down debt, generate capital for new investment and is
supportive for the launching of new funds, as the deals have materially
improved GPCPV’s performance, given >2.5x cash-on-cash returns in US$.
GP’s number of shares is down from 159.1m in 2012, to 127m in 2014.
Whenever treasury stock has been cancelled, GP has immediately instigated
a further buyback programme for up to 10% of the firm's revised free float.
We apply a 25% discount to our target NAV to reach our price target of
R$7.5 (R$7.20 previously). GP currently trades at a 33% discount to
reported NAV, against an historical average of a 10% premium since 2006
and a 30% discount since 2011. The firm’s NAV may also benefit from its
sizeable US$ net cash position - we estimate that GP holds a US$125m net
cash position, equivalent to 65% of its market capitalisation.
Dec-13!
Spice trades at 42% discount to NAV, mostly in US$-denominated cash
GP owns 31.7% of a Swiss-listed private equity firm called Spice Private
Equity Ltd. (formerly APEN) and 100% of its management company. GP
acquired an initial 26.7% stake in APEN for US$33m in May 2013. This
stake is now valued at US$64m (at NAV, ex management fees). On 3
January 2015, the PE firm announced the completion of the divestment
of its entire “legacy portfolio”. The legacy portfolio mostly comprised of
secondary investments in private equity funds made under the firm’s
previous investment strategy and was sold for US$192m to funds
managed by Strategic Partners Funds Solutions (Blackstone). The latter
transaction also involved the transfer of US$95m of loan obligations to
Strategic Partners, resulting in the full deleveraging of the investment
vehicle. As a result, Spice now holds more than 90% of its current NAV
in cash and receivables from the transaction, which will be reinvested in
emerging markets opportunities going forward. Spice Private Equity
Ltd.’s NAV reached US$202m at the end of 2014, implying a 42%
discount to NAV, mostly consisting of US$-denominated cash.
RIC | BBG
Aug-13!
Par Corretora appears to be under-valued and being lined up for an IPO
GP Investments (GP) owns an 18% stake in a private firm called Par
Corretora, an insurance broker that has an exclusivity agreement for the
intermediation of insurance products issued by Caixa Seguros. Par
Corretora generates the majority of its sales through Caixa Econômica
Federal’s nationwide network of over 4,200 branches. GP values its 18%
stake at R$69m on a reported net asset value basis (0.9x acquisition
value). This valuation translates into a multiple of 4.5x actual earnings,
which seems modest given the growth profile of the business (earnings
grew by 35% YoY in 2014 to R$85m). Furthermore, Par Corretora’s
payout was 136.6% last year or R$116m in absolute terms. This resulted
in an R$20.9m distribution for GP, a sum equivalent to 30% of the
valuation being used by GP for its stake in the firm. Shareholders filed
an application to register a secondary public offering for Par Corretora
at the end of 2014.
Buy, Price Target R$7.50
Jun-13!
Par Corretora, Spice and a buy-back
0!
Source: Bloomberg, Nau Securities!
GP Investments
14 April 2015
Key Points
GP to raise $1.5bn new funds?
According to Reuters, GP Investments plans to raise US$1.5bn in four
new funds including private equity, real estate, and infrastructure. GP
expects to raise US$800m in a new private equity fund, US$300m in
infrastructure and the remaining in a real estate fund. GP should
capitalise on the recent premium returns achieved on the sale of
assets such as Sascar and BR Towers to attract new money to launch
new funds, as well as the strong performance of its underlying assets
such as Centauro, Beleza Natural, Tempo, among others. GP has raised
US$5bn from investors since 1993. GP generated gross proceeds of
US$213m in two transactions mid last year - Sascar and BR Towers representing more than 80% of its market cap. The deals allowed the
company to pay-down debt, strengthen their position for new
investments, and support the launch of a new fund by improving
GPCPV performance quite materially, given over 2.5x cash-on-cash
returns in US$ in a short period of time.
A private equity fund manager and significant co-investor
GP manages US$2.6bn of capital in its private equity business and is
differentiated from other listed private equity vehicles in that it
invests in the funds it manages, and a significant part of its current
portfolio is listed. The partners have 100% of the voting rights of GP,
but share the economic rights with remaining investors. Partners
control 30% of the capital (35% with options included). The
management team has been in place without many changes, with an
average of 10 years in the company.
Beleza Natural, with its patented formula and highly institutionalised
offering has been growing 30% CAGR for the last 10 years, but still
has lots of space to grow in Brazil with only 26 units operating
currently (8 stores opened in 2014).
GP Investments active buyback plan
GP returned US$32.5m to investors in 2014 through the repurchase
of 16.6m shares, or 7% of its NAV and 11% of total shares outstanding
at the beginning of the year. On February 12th, 2015, GP Investments
announced the cancellation of a further 8,116,500 of the company’s
Class A shares that had been previously acquired under the buyback
program approved on October 25th, 2014 and were held by the
company as treasury shares. Following the cancellation, the total
number of shares outstanding was 127,182,151 shares, consisting of
92,757,863 Class A shares and 34,424,288 Class B shares. The
company also announced a new share repurchase program of up to
9,275,786 of the company’s Class A shares (approximately 10% of the
company’s free float on that date), that started on February 10th,
2015. GP’s number of shares is down from 159.1m in 2012 to 127m
in 2014. Whenever Treasury stock has been cancelled GP has
immediately renewed the buyback plan for up to 10% of the new
company's free float. GP’s cash and cash equivalents at the end of
2014 totalled US$215.6m (94% in US$, 5% in CHF) and financial
investments were US$85.8m (79% in US$), resulting in an aggregate
liquid position of US$301.4m, mostly in US$ (92%). Non-current
liabilities totaled US$338m, comprising mainly perpetual notes and
the long-term loan, of which US$109m in BRL and US$152m in US$.
Third party assets under management growth is key
GP will have to grow third party assets under management - as it did
recently with Apen, now Spice (31.7% ownership and 100%
management), the recently launched real estate fund and the planned
launch of an infrastructure fund - in order to capture asset
management value, rather than just NAV growth. We believe GP could
also reduce the direct ownership of its funds in order to create asset
management value, which would also support narrowing the large
discount to NAV it trades at. On the other hand however, it would
also reduce the capital gains potential for its shareholders.
Private markets more charitable than public markets
GP’s portfolio has been quite resilient with Allis and Tempo being
B2B, Ebam consolidating the market for aggregates, and consumerfacing businesses such as Centauro operating in a less competitive
sub-sector than the Brazilian Retailers, and is five times the size of
the second player. Beleza Natural is still relatively young and smaller
in scale, with only 26 'beauty institutes', but with considerable scope
to roll out significantly more units. Recent transactions such as the
sale of Tempo’s client portfolio to Unimed Seguros, the sale of its
dental insurance to Caixa Seguros and the Qualicorp deal show a
disconnect between private market and public market valuations that
further illustrates the potential value hidden in GP’s portfolio, adding
to transactions such as Sascar, BR Towers and APEN portfolio.
Centauro, Par Corretora, Beleza Natural: next to be monetized?
In 2014, Centauro revenue rose 17% to R$2.6bn and expects to grow
a further 11.5% in 2015 to R$2.9bn, of which R$500m e-commerce
sales, up 32% yoy. Centauro plans to open six stores, the same
number as in 2014. The SBF group ended last year with 187 units of
Centauro, 16 of By Tennis and 12 Nike stores. GP Investments paid
R$450m in November 2012 for a 30% stake in Grupo SBF.
Centauro has the size for an IPO, with almost R$3bn revenues as the
dominant sporting goods retailer in Brazil, more than five times the
size of the No.2 competitor. The least mature are Ebam (sales up 80%
in 2013 and EBITDA up 512% to R$8m) and Beleza Natural (sales up
46% in 2014 and EBITDA up 48% yoy).
2/5
GP Investments
14 April 2015
GP Investments net asset value
US$m
RIC
% own. # shares
Price
Mktcap
Market
(m)
(US$)
(US$m)
(US$m)
% GAV
% NAV
Target NAV per
(US$m)
Comment
share $
Magnesita
MAGG3
7.1
292
2.0
264
18
7
5
18
0.14 Market price, no liquidity discount
BHG
BHGR3
8.3
43
6.5
257
32
11
9
32
0.25 Market price, no liquidity discount
SPCE
31.7
5.4
21.0
118
37
13
10
48
0.38
TEMP3
10.4
157
2.0
148
15
6
4
15
0.12 Market price, no liquidity discount
Spice Private Equity
Tempo
Listed assets
201
102
37
28
113
0.89
4.9
82
0
0
0
0
0.00
20.1
128
0
0
0
0
0.00
8.1
60
65
24
18
65
0.51
BRZ Investimentos
83.1
33
3
1
1
24
0.19
Allis
23.8
18
11
4
3
11
0.09
Real estate
40.9
30
28
10
8
28
0.22
EBAM
33.3
35
31
11
9
31
0.24
Beleza Natural
14.0
13
17
6
5
17
0.13
Par Corretora
18.0
26
18
7
5
36
0.29
0
0
0
0
0
0.00
LBR
San Antonio
Centauro
Other
Unlisted Assets
424
174
63
48
212
1.67
GAV
625
276
100
77
326
2.56
Net cash (debt)
(35)
-10
(35)
-0.27
Other financial assets
118
33
118
0.93
Stock options cash proceeds
0
0
0
0.00
Performance fees
0
0
0
0.00
Overheads
0
0
0
0.00
359
100
409
3.22
NAV
# shares (m)
127.1
2.8
3.2
Per share (R$)
8.8
10.0
Current discount to NAV
- current price (R$)
GPIV33
-33
-41
-119
-169
5.9
5.9
- target price (R$)
7.5
7.5
Implied discount at Target (%)
-15
-25
Stub value (US$m)
2.0% AUM
9x PER, 15% dividend yield
127.1
Per share (US$)
Current discount to NAV (%)
25% discount to NAV
54
Per share (US$)
0.4
@ market (US$m)
174
Per share (US$)
1.4
Discount (US$m)
-119
% discount
-69
Source: Nau Securities. * Mktcap column corresponds to acquisition value for the unlisted assets.
GP Investments NAV discount!
Latin American holding companies NAV discount!
50%!
200%!
45%!
40%!
150%!
35%!
30%!
25%!
100%!
20%!
15%!
50%!
10%!
5%!
Duratex!
Copec!
Ultrapar!
Nutresa!
SM Chile!
Alfa!
Grupo Carso!
IRSA!
CIE Automotive!
Metalurgica
Itausa!
Mkt cap
Grupo Argos!
Cosan Limited!
Average Holdcos
Average!
Grupo SURA!
Coteminas!
Ocean Wilsons!
Cresud!
Hansa Trust!
Grupo Kuo!
Quiñenco!
Bradespar!
CSAV!
GP Investments!
Source: Company data, Nau Securities estimates!
Cosan SA!
-50%!
AntarChile!
4Q14!
2Q14!
4Q13!
2Q13!
4Q12!
4Q11!
2Q12!
2Q11!
4Q10!
2Q10!
4Q09!
2Q09!
4Q08!
4Q07!
2Q08!
2Q07!
4Q06!
2Q06!
0%!
0%!
Source: Nau Securities estimates!
Freight rates | Bunker prices!
3/5
GP Investments
14 April 2015
DISCLAIMER
5.3
1. LEGAL NOTICE
1.1
1.2
Please note that access to and the use of this Research is subject to the following terms
and conditions. Before accessing and using this Research please read these terms and
conditions as they constitute a legal notice and contain important legal information.
By accessing and using this Research you acknowledge that you have reviewed,
understood and agreed to the terms and conditions contained herein. If you do not agree
to the terms and conditions below, do not access or use this Research in any way.
5.4
2. RESTRICTIONS
2.1
2.2
2.3
2.4
2.5
This Research is produced in accordance with COBS 12.2 as Investment Research and is
directed solely at Eligible Counterparties and Professional Clients as defined by the
Financial Service Authority (“FSA”) Rules. Its contents are not directed at, may not be
suitable for and should not be relied on Retail Clients or by advisory services to Retail
Clients. Nau Securities Ltd (“Nau”) does not provide investment advisory services to
Retail Clients.
This Research is not intended for distribution to, or use by, any person or entity in any
jurisdiction or country where such distribution, publication or use would be contrary to
local law or regulation or in which Nau does not hold any necessary registration or
license. Individuals or legal entities in respect of whom such prohibitions apply, whether
on grounds of their nationality, their place of residence or on other grounds, must not
access or use this Research. You assume responsibility for determining whether any legal
or regulatory considerations limit your access to or use of this Research and it is your
responsibility to be aware of and to observe all applicable laws and regulations of any
relevant jurisdiction.
Without prejudice to the foregoing, this Research is for informational purposes only and
does not constitute an offer to sell or the solicitation of any offer to buy securities in the
United States of America (“USA”) to or for the benefit of US persons (being residents of
the USA or partnerships or corporations organized under the laws of the USA or any
state, territory or possession thereof). In particular neither Nau, nor any affiliate of Nau,
are members of FINRA, any other USA SRO nor are they registered with the Securities
and Exchange Commission (“SEC”). If after reviewing this Research an investor in the
USA wants to purchase securities in GP Investments, they must direct their orders to a
USA broker-dealer that is a member of FINRA and registered with the SEC. Nau will not
be compensated based on any securities transactions by investors in the USA or any
other US persons that result from the distribution of this Research.
Products or services described in this Research may not be available in all jurisdictions.
To the extent that this Research is issued in the United Kingdom and in the EEA states, it
is issued for the purposes of the UK Financial Services and Markets Act 2000 by Nau
which is authorised and regulated in the UK by the Financial Conduct Authority (number
558158).
5.5
6. COPYRIGHT
6.1
This Research may not be reproduced, copied, transmitted, disclosed, distributed or
otherwise communicated in whole or in part to any other party by you for any purpose
or incorporated into another database, document or other materials without our prior
written consent.
7. GOVERNING LAW AND DISPUTE RESOLUTION
7.1
7.2
3. RESEARCH
3.1
3.2
3.3
3.4
All statements and opinions contained in this Research are made as of the date on the
face of the Research and are not held out as applicable thereafter. Research will carry
the date of the publication or, on a publication printed overnight, the date on which it
was sent to the printers. Where a price is quoted in Research it will generally, in the
absence of contrary words, be the latest practicable price prior to distribution or, in the
case of a publication printed overnight, the closing price at the close of business.
Research will identify material sources.
A company covered in such Research may have paid for an analyst’s reasonable
expenses to visit their premises or offered modest and proportionate hospitality or
entertainment: further details are available on request.
The analyst primarily responsible for the preparation of this Research confirms that the
statements and opinions rendered in this Research reflect those of Nau. No part of the
analyst’s compensation was, is, or will be directly or indirectly related to the statements
and opinions stated herein or linked to the pricing of any of the securities discussed in
this Research.
Nau has in place arrangements designed to ensure that the conditions set out in COBS
12.2.5 are satisfied. This Research has been prepared in accordance with legal
requirements designed to promote the independence of Investment Research and is
subject under the Markets in Financial Instruments Directive (“MiFID”) to prohibition on
dealing ahead of the dissemination of Investment Research.
4. RISK WARNINGS
4.1
4.2
4.3
4.4
This Research is for information only and does not constitute or form part of an offer to
sell or the solicitation of an offer to buy or sell any securities or any advisory or
management service in any jurisdiction. It does not constitute a personal
recommendation.
You are advised not to rely on any of this Research in the process of making a fully
informed investment decision. Instead, you are urged to base investment decisions upon
a thorough investigation and to obtain all necessary professional advice; you must
satisfy yourself that any dealing is appropriate in the light of your own understanding,
appraisal of risk and reward, objectives, experience, and financial and operational
resources.
Past performance data or forecasts contained in this Research are no indication of future
performance and nothing in this Research should be interpreted to state or imply
otherwise. The value of investments may fall as well as rise and investors may not get
back the full amount invested.
If a financial instrument is denominated in a currency other that an investor’s currency,
changes in exchange rates may adversely affect the price or value of, or the income
derived from the financial instrument. You assume all foreign exchange risks.
5. ACCURACY AND LIABILITY
5.1
5.2
Although this Research is obtained or compiled from sources we believe to be reliable,
we cannot and do not guarantee the accuracy, validity, timeliness or completeness of any
information or data made available to you for any particular purpose.
All statements, opinions, estimates and projections contained in this Research are made
as of the date on the face of the relevant information and are not held out as applicable
thereafter; they are, however, subject to change without notice. Prices and availability of
financial instruments are indicative only and are also subject to change without notice.
Nau has no obligation to update, modify or amend this Research after the publication
date, but reserves the right to change this Research at any time.
This Research is not intended to be used as the sole basis for investment decisions, nor
should it be construed as investment, tax, or legal advice designed to meet the particular
needs of an individual investor. Additionally, this Research is provided "AS IS" and "AS
AVAILABLE". This Research is presented without warranty of any kind, either express or
implied, including without limitation of any warranties concerning the availability,
reliability, accuracy, completeness, timeliness or sequencing of the Research or its
merchantability and fitness for a particular purpose.
In no event shall Nau, its directors or employees be liable for any indirect, incidental,
special, punitive or consequential loss or damage (including, without limitation, damage
for loss of data, business or profits) arising out of or in connection with this Research,
whether based on contract, tort, strict liability or otherwise, even if Nau has been
advised of the possibility of such damages, and notwithstanding the failure of the
essential purpose of any remedy. Without limiting the foregoing provisions of this
paragraph, these limitations also apply to any third party claims against you. Nau will not
be responsible for any loss or damage that could result from interception by third parties
of any of this Research.
As a condition of using this Research, you agree to indemnify, defend and hold harmless
Nau, its affiliates and licensors, and the officers, members, directors, delegates, partners,
employees, and agents of Nau and its affiliates and licensors, from and against any and
all claims, liabilities, damages, losses or expenses, including legal fees and costs, arising
out of or in any way connected with your access to or use of this Research by or through
you.
This Research is produced in England and these terms and conditions shall be governed
by the laws of England and Wales.
If any dispute or difference arises out of or in connection with the Research which the
parties are unable to resolve by negotiation (“Dispute”), the parties shall seek to resolve
the Dispute amicably by using the following procedure:
i) The parties shall submit the Dispute to a neutral advisor appointed by agreement
between the parties to assist them in resolving the Dispute. Either party may give
written notice to the other describing the nature of the Dispute, requiring the Dispute
to be submitted to such a neutral advisor and proposing the names of up to three
suitable persons to be appointed. If no such person is appointed by agreement
between the parties within 14 days after such notice is given (or, if no such notice is
given, within 28 days after the Dispute has arisen) either party may request the
Centre for Dispute Resolution to appoint a neutral advisor (“Mediator”).
ii) The parties shall, with the assistance of the Mediator, seek to resolve the Dispute by
using an Alternative Dispute Resolution (“ADR”) procedure between the parties or, in
default of such agreement, established by the Mediator.
iii) If the parties accept any recommendations made by the Mediator or otherwise reach
agreement as to the resolution of the Dispute, such agreement shall be recorded in
writing and signed by the parties (and, if applicable, the neutral advisor) whereupon it
shall become binding by the parties.
iv) If the Dispute has not been resolved to the satisfaction of both parties within 60 days
after the appointment of the Mediator; or either party fails or refuses to agree to or
participate in the ADR procedure; or, in the event the Dispute is not resolved within
90 days after it has arisen then the Dispute shall be referred to arbitration in
accordance with the provisions of clause v).
v) Any dispute or difference between the parties in connection with this Agreement
which is referred to arbitration, shall be referred to a sole arbitrator (“Arbitrator”):
a) The arbitration shall be held in London.
b) The Arbitrator shall be appointed by the parties or, failing agreement, by the
Chairman for the time being of the London Stock Exchange.
c) The procedure shall be agreed by the parties or, failing agreement, determined by
the Arbitrator.
vi) If either party fails to comply with any procedural order made by the Arbitrator, the
Arbitrator shall have power to proceed in the absence of that party and deliver the
Award.
vii) In the event that the Dispute is referred to arbitration:
a) Any Mediator involved in the ADR procedure shall not, unless the parties jointly
agree otherwise in writing, take any part in the arbitration or any other related
proceedings, whether as an Arbitrator, witness or otherwise and no aspect of the
ADR procedure, including any recommendations made by him in connection with
the ADR procedure, shall be relied upon by either party without the consent of the
other Party and the neutral advisor.
b) Neither party shall make use of nor rely upon information supplied or arguments
raised by the other party in the ADR procedure.
viii) The costs and fees of the Mediator, the ADR service provider and any neutral venue
shall be borne equally by the parties who shall bear their own costs of all other
aspects of the ADR procedure. However, nothing in this clause shall prevent the
Arbitrator, should he think fit, from making the costs and expenses of the ADR the
subject of an Order in the arbitration.
8. Nau accepts no responsibility whatever for any failure to observe the foregoing.
Nau Securities Ratings weight
# Covered Stocks
% Weight
Buy
40
49
Fair Value
33
40
8
11
Sell
4/5
André Cepeda, untitled, Rio de Janeiro, Brasil, 2012.©