Summary
- P10 went public in the U.S. in October 2021, raising approximately $240 million in an IPO.
- The firm operates as an investment advisory firm in private markets worldwide.
- PX has produced revenue growth, but a higher cost of capital environment puts downward pressure on valuations.
- I'm on Hold for PX in the near term as interest rates continue to rise, but the stock is worth putting on a watch list.
A Quick Take On P10
P10 ( PX ) went public in October 2021, raising approximately $240 million in gross proceeds from an IPO that was priced at $12.00 per share.
The firm provides investment advisory services to individual, institutional, and sovereign investors worldwide.
My outlook for PX in the near term is on Hold due to a rising interest rate environment, although the stock is worth putting on a watch list for future consideration.
P10 Overview
Dallas, Texas-based P10 was founded to provide advisory services to high net worth individuals, family offices, institutional investors and sovereign wealth funds seeking exposure to various alternative assets.
Management is headed by Chairman and Co-CEO, Robert Alpert, who has been with the firm since 2017 and was previously CEO and Chairman of Globalscape, and the founder and portfolio manager of Atlas Capital Management.
The company's primary offerings include:
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Private Equity
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Venture Capital
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Impact Investing
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Private Credit
The company generates revenue from recurring management and advisory fees that are mostly earned on committed capital subject to long-term lock-up agreements.
P10 seeks business relationships with a wide variety of investors through its dedicated business development and investor relationships teams.
Management is also seeking to grow through acquisitions, perhaps to add new asset class solutions to 'foster deeper manager relationships.'
The firm focuses its investments on middle market and lower middle market companies.
P10's Market & Competition
According to a 2021 market research report by Deloitte, passive funds and private capital have outperformed active domestic equity and hedge funds for the period 2010 to 2019.
Notably, advisory companies expect to reduce their costs over the near term as a result of the global pandemic.
Firms will also seek to increase their investment to improve their client communication and engagement through digital means.
Major competitive or other industry participants include:
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BlackRock
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Invesco
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Goldman Sachs
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Capital Group
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Oaktree Capital
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Others
P10's Recent Financial Performance
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Total revenue by quarter has risen per the following chart:
9 Quarter Total Revenue (Seeking Alpha)
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Gross profit by quarter has grown accordingly:
9 Quarter Gross Profit (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter have fluctuated within a range:
9 Quarter Selling, G&A % Of Revenue (Seeking Alpha)
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Operating income by quarter has trended higher, as the chart shows below:
9 Quarter Operating Income (Seeking Alpha)
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Earnings per share (Diluted) have followed the trajectory shown below:
9 Quarter Earnings Per Share (Seeking Alpha)
(All data in above charts is GAAP)
Since its IPO, PX's stock price has fallen 16.5% vs. the U.S. S&P 500 Index's drop of around 19.1%, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Furthermore, the shape of P10's stock chart over the past 12 months is quite similar to that of the S&P 500's chart, so it appears PX's return is highly correlated to that of SPY's.
Valuation And Other Metrics For P10
Below is a table of relevant capitalization and valuation figures for the company:
Measure ((TTM)) | Amount |
Enterprise Value/Sales | 8.15 |
Revenue Growth Rate | 62.7% |
Net Income Margin | 13.8% |
GAAP EBITDA % | 48.0% |
Market Capitalization | $1,240,000,000 |
Enterprise Value | $1,420,000,000 |
Operating Cash Flow | $54,590,000 |
Earnings Per Share (Fully Diluted) | $0.20 |
(Source - Seeking Alpha)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm's projected growth and earnings:
Discounted Cash Flow Calculation (GuruFocus)
Assuming generous DCF parameters, the firm's shares would be valued at approximately $12.62 versus the current price of $10.23, indicating they are potentially currently undervalued, with the given earnings, growth and discount rate assumptions of the DCF.
Commentary On P10
In its last earnings call ( Source - Seeking Alpha), covering Q2 2022's results, management highlighted the growth of its fee-paying assets to $18.5 billion or 30% higher than the previous year's same period.
The firm has a number of investment strategies, so leadership believes it is not dependent on one strategy to grow its business.
However, private equity exit activity has slowed, likely due to dropping valuations in a growing cost of capital environment.
Due to this environment, management has focused its efforts on credit and NAV loans 'as a way to fund portfolio companies and bolster returns…(management) expects to see continued growth from this credit sleeve, especially as spreads widen and durations lengthen.'
As to its financial results, revenue rose 38% year-over-year while adjusted EBITDA, which usually excludes stock-based compensation and one-time items, increased by 52%.
Operating expenses rose 21% year-over-year, driven by a variety of cost increases, but GAAP net income increased 351% due to fee-paying AUM growth, margin expansion, and interest expense reductions.
For the balance sheet, the company finished the quarter with cash and equivalents of $23.6 million and long-term debt of $187.9 million.
Over the trailing twelve months, free cash flow was $53.9 million, with only $0.7 million as CapEx.
Looking ahead, management expects to use operating cash to 'continue paying down debt, paying quarterly shareholder dividend, potentially utilizing the stock buyback announced last quarter, and for future acquisition.'
Regarding valuation, my discounted cash flow analysis indicates the stock may be undervalued at its current level.
However, given the rising interest rate environment, which puts downward pressure on company valuations, it is difficult to see a meaningful upside catalyst to the stock in the near term.
Accordingly, my outlook for PX in the near term is on Hold, although the stock is worth putting on a watch list for future consideration.
For further details see:
P10 Grows Revenue But Valuation Drops May Weigh On Stock