2023-08-21 15:03:40 ET
Summary
- P10 went public in October 2021, raising $240 million in an IPO priced at $12.00 per share.
- The firm provides investment advisory services to individual, institutional, and sovereign investors worldwide.
- P10 has weathered market volatility and is well-positioned for continued growth, despite its higher stock price.
- My outlook is a Buy at around $98.00 per share.
A Quick Take On P10
P10 (PX) went public in October 2021, raising approximately $240 million in gross proceeds from an IPO that priced at $12.00 per share.
The firm provides investment advisory services to individual, institutional and sovereign investors worldwide.
PX has weathered a volatile period in the markets and in the broader economy and appears well-positioned for continued growth.
While the stock isn’t cheap, the firm’s future growth profile and ease of fundraising indicate market strength, so my outlook is a Buy at around $98.00 per share.
P10 Overview And Market
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.
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 (BLK)
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Invesco
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Goldman Sachs (GS)
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Capital Group
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Oaktree Capital
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Others
P10’s Recent Financial Trends
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Total revenue by quarter has grown per the following trajectory; Operating income by quarter has turned up sequentially recently.
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Gross profit margin by quarter has turned up recently; Selling and G&A expenses as a percentage of total revenue by quarter have been higher in 2023 than in 2022:
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Earnings per share (Diluted) have fallen in recent quarters:
(All data in the above charts is GAAP)
For the balance sheet , the firm ended the quarter with $23.4 million in cash and equivalents and $271.7 million in total debt, none of which was categorized as the current portion due within 12 months.
Over the trailing twelve months, free cash flow was $66.2 million, during which capital expenditures were only $1.5 million. The company paid $29.6 million in stock-based compensation in the last four quarters, the highest trailing twelve-month figure in the past eleven quarters.
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 | 7.7 |
Enterprise Value / EBITDA | 21.9 |
Price / Sales | 6.4 |
Revenue Growth Rate | 31.2% |
Net Income Margin | 5.5% |
EBITDA % | 35.3% |
Market Capitalization | $1,450,000,000 |
Enterprise Value | $1,760,000,000 |
Operating Cash Flow | $67,710,000 |
Earnings Per Share (Fully Diluted) | $0.12 |
(Source - Seeking Alpha)
Compared to a basket of alternative asset managers, PX’s EV/Sales and EV/EBITDA were somewhat higher than the average of the group.
Sentiment Analysis
From management’s most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below:
I’m most interested in the frequency of potentially negative terms, so management or analyst questions cited ‘Challeng[es][ing]’ two times, ‘Headwinds’ two times, ‘Macro’ two times and ‘Drop’ once.
Analysts questioned company leadership about its ability to attract larger investment funds and management responded that it has had to raise the cap twice for its secondary fund and still was oversubscribed.
However, management said its growth process will ‘take time’ and that it is ‘planting the seeds’ for larger fund inflows.
Commentary On P10
In its last earnings call ( Source - Seeking Alpha ), covering Q2 2023’s results, management highlighted its strong deployment and fundraising during the quarter despite market headwinds.
Leadership sees positive trends in the private and alternative markets. The company hit its $5 billion fundraising goal six months early.
The firm’s private equity business, especially its secondary funds, have performed well and were recognized as a ‘top ten fund family in secondary strategies’ by noted PE database PitchBook.
Total revenue for Q2 2023 rose 33.8% year-over-year and gross profit margin dropped 2.7%.
Selling and G&A expenses as a percentage of revenue increased 5.2% year-over-year and operating income grew by 8.2%.
The company's financial position is reasonably strong, with plenty of free cash flow and only long-term debt with no current maturities.
Looking ahead, for full-year 2023, management guided to ‘double-digit growth for revenue, adjusted EBITDA and ANI [Adjusted Net Income]. Although interest rates and the resulting interest expense will make hitting the double-digit ANI growth target more of a challenge.’
Consensus revenue estimates for 2023 suggest a growth rate of 23.3%. If achieved, this would be a reduction in 2022’s revenue growth rate of 31.76% over 2021.
Regarding valuation, the market is valuing PX at a higher valuation than many other alternative investment managers, likely due to higher revenue growth than larger peers.
After a year of sharp interest rate rises hurting the valuations of alternative investment managers, PX, like a number of its peers, has demonstrated that it can weather a challenging period.
As we appear to enter the final period of interest rate rises, the firm will face the potential of a ‘higher for longer’ interest rate environment.
This will make risk assets tend to trade at lower valuations, all other things being equal.
Having come through a challenging time with its platform and approach intact, I’m optimistic on PX being able to attract investment and deploy the capital to continue its growth.
While the stock isn’t cheap, the firm’s expected future growth profile and ease in fundraising indicate market strength, so my outlook is a Buy at around $98.00 per share.
For further details see:
P10 Hits Fundraising Target 6 Months Early, Showing Strong Demand (Rating Upgrade)