VINP - Vinci Partners Targets Vast Market Opportunity In Brazil Pensions

2023-03-16 14:33:54 ET

Summary

• Vinci Partners Investments Ltd. reported its Q4 financial results on February 14, 2023.
• The firm provides investors with access to alternative investment opportunities in Brazil.
• Vinci Partners Investments has the potential for growth from its new retirement services segment which is targeting the "vast market opportunity" of Brazilian pensions.
• My outlook on Vinci Partners Investments Ltd. is a Buy at around $9.00 per share.

A Quick Take On Vinci Partners

Vinci Partners Investments Ltd. ( VINP ) reported its Q4 2022 financial results on February 14, 2023, and announced a share buyback plan.

The firm provides investors with access to various investment products in Brazil.

Given Vinci’s growth potential with its new VRS segment, the increasing likelihood of a more favorable interest rate environment, and its strong distribution yield potential, my outlook on VINP stock is a Buy at its current price of around $9.00 per share.

Company

Rio de Janeiro, Brazil-based Vinci was founded in 2009 to operate as a private equity firm, creating a portfolio of private and public investments.

Management is headed by co-founder and Chief Executive Officer Alessandro Horta, who was previously a vice president, managing partner and CEOO at Banco Pactual and headed the long-term investments segment.

The company’s primary investment offerings include:

• Private Equity

• Infrastructure

• Real Estate

• Credit

• Public Equities

• Hedge Funds

• Financial Advisory.

The firm seeks to increase its assets under management [AUM] in order to invest in promising alternative investment categories throughout Brazil.

The region's private equity firms have benefitted from a drop in nominal interest rates in Brazil from 14.25% to 2.25%.

Market & Competition

According to a 2025 market research report by Chambers & Partners, the 2019 private equity investment volume was an estimated $12.8 billion in Brazil.

A number of highly valued companies came of age in 2019, including logistics company Loggi, health & fitness firm Gympass, property technology company Quinto Andar and Fintech firm Ebanx.

While the Covid-19 pandemic hit the economy hard, the country already had ample digital infrastructure, so alternative investment firms such as Vinci were positioned to continue moving transactions forward despite the lockdowns.

Also, private equity firms may be changing their deal criteria, focusing on more resilient businesses and on how customer behavior has changed and will change due to the pandemic's effects.

Major competitive or other industry participants include:

• Advent International

• Patria Investments ( PAX )

• Kinea Investimentos

• Perfin

• XP ( XP )

• Banco BTG Pactual

• Credit Suisse ( CS )

• Brazilian Banks.

Vinci’s Recent Financial Results

• Total revenue by quarter has followed the trajectory shown below:

• Selling, G&A expenses as a percentage of total revenue by quarter dropped sharply in the most recent quarter:

• Operating income by quarter has trended lower, as shown below:

• Earnings per share (Diluted) have produced the following trajectory:

(All data in the above charts is GAAP.)

In the past 12 months, VINP’s stock price has fallen 30.5% vs. that of the Patria Investments drop of 12.3%, as the chart indicates below:

As to its Q4 2022 financial results , total revenue rose only 1.9% year-over-year, while SG&A expenses as a percentage of revenue fell sharply.

Operating income has trended lower, yet earnings per share have remained robust.

Management recently reduced the dividend, however due to the drop in the price of the stock, the forward dividend yield is currently around 7.8%.

Publicly held equity investment firms can frequently have "lumpy" distributions based on uneven realized gains from the sale of their investment portfolio securities or other instruments, if those amounts are not otherwise "smoothed out" from fee-related earnings.

Valuation And Other Metrics For Vinci Partners

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

As a reference, a relevant partial public comparable would be Patria Investments Limited; shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha.)

Future Prospects For Vinci Partners

In its last earnings call ( Source - Seeking Alpha ), covering Q4 and full-year 2022’s results, management highlighted the growth in its 2022 cash earnings per share of 9% versus that of 2021.

The firm is currently in a fundraising cycle and it remains to be seen how the global financial market volatility will affect its fundraising results.

Notably, the new funds to be raised will likely "carry a higher fee rate than the current blended average fee" for the firm.

Management has also been able to improve its diversification, with funds raised in its real estate investment trust ("REIT") segment despite an interest rate tightening cycle in Brazil.

And the firm is increasing its investment in the pension plan industry via its new retirement service vertical, VRS (Vinci Retirement Services). The segment will allow the firm to "operate life insurance and open-ended pension plans in Brazil."

Management believes the VRS opportunity represents a "vast market" that can provide the firm with significant fee income growth as it seeks to compete against incumbent banks, which hold 90% of existing pension funds.

Regarding valuation, the market is valuing Vinci at markedly lower multiples than competitor Patria Investments.

The primary risk to the company’s outlook is the potential for market volatility ahead and its unpredictable effects on asset valuations, at least in the short term.

A potential upside catalyst to the stock could include a pause in interest rate hikes, capping or even reducing the cost of capital.

Given Vinci Partners Investments Ltd.’s growth potential with its new VRS segment, the increasing likelihood (in my opinion) of a more favorable interest rate environment and its strong distribution yield potential, my opinion on VINP is Bullish at its current price of around $9.00 per share.

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