The analysts at Barrenjoey are tipping significant upside for Navigator Global Investments Ltd (ASX: NGI) shares following the company's sale of its stake in Invictus Capital.
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Strong return on investment
Earlier this week, Navigator said New York Life Investment Management would acquire a 60% stake in Invictus Capital Partners from Navigator and other shareholders, with the remaining interest to be purchased in 2031.
Navigator said the deal delivered it material upfront proceeds of US$40 million to US$43 million, with a potential earn-out of up to US$32 million in 2030.
An additional consideration would be determined by Invictus' future business growth, Navigator added.
The company said the transaction implied a materially higher valuation for Invictus compared to its initial investment in 2022.
Navigator added:
For NGI, the Transaction represents a partial realisation at an attractive valuation, while retaining meaningful exposure to Invictus' ongoing growth and performance over the multi-year period to 2030 through retained interests, existing carried interest and fund investments, and potential future consideration. The Initial Closing is expected to occur in the first quarter of 2027, subject to customary closing conditions and regulatory approvals. It is anticipated to deliver a significant return on NGI's invested capital, with value realised through upfront proceeds at the Initial Closing, potential earn-out consideration and additional consideration at the Deferred Closing in 2031.
Navigator Chief Investment Officer Ross Zachary said the deal "serves as an example of how NGI's partnership model can create value for all stakeholders of alternative investment management firms''.
Navigator added:
NGI first partnered with Invictus in August 2022, with total consideration of approximately US$115 million paid over three years. Since then, Invictus has more than tripled gross assets, generating strong outcomes for its investors and extending its leadership position in the U.S. residential mortgage credit market. The results of the partnership, including distributions received by NGI and the growth in the value of NGI's interests before consideration of the Transaction, have exceeded NGI's return targets and generated an attractive return for shareholders.
Analysts like the look of the deal
Barrenjoey analysts said in a note to clients that the deal highlights that the price for one of Navigator's private market firms was well above the valuation it is trading on.
They added:
We estimate a PE for the sale in the high teens, perhaps into the 20s based on management fee-only profits.
Barrenjoey has a price target of $4.20 for Navigator shares, compared with the current $2.43.
Macquarie also issued a new research note on Navigator following the announcement, with a price target of $3.24.
Navigator is valued at $1.51 billion.
