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Buyout firm EQT’s stock slumps as earnings disappoint

Sweden-based buyout firm pays price for disappointing half year results as valuation risks mount

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Europe’s EQT’s stock sank almost 15% Thursday, an abrupt end to the global buyout firm’s stock surge this year as the tough investing climate triggered by the coronavirus pandemic challenges the industry’s ability to generate outsize returns.

The Sweden-based asset manager’s share price drop comes after it reported a 34% earnings decline for the first half of 2020 from a year earlier as fees tied to investment returns fell short. The pandemic, for instance, is hampering the ability of private equity firms to sell companies — a key source of returns. The number of global PE exits fell almost 34% in the first half of 2020 from the year-ago period to 718, according to data provider Preqin. The total value of exits dropped 58% to $101.3bn.

The disappointing earnings also served as a wake-up call for investors betting on a continued rise even as the company’s valuation increasingly looked out of step with EQT’s US rivals. EQT currently trades at close to 46 times expected earnings, compared with Blackstone’s almost 21 times, according to FactSet. And on average, equity analysts’ ratings tracked by the data provider recommend investors underweight EQT’s stock, further highlighting the potential for continued selling pressure on the stock. That scepticism indicates the onus is on the buyout firm to show a recovery in its earnings before investors bet on the stock again.

“The company has a tremendous track record at increasing the size of its funds and is positioned to deliver good returns, but the stock is too pricey,” said Christian Brunlid, a Handelsbanken Fonder AB fund manager. The money management firm has cut its EQT stake to 5.9 million shares from 8.1 million at the beginning of the year.

EQT’s stock had been on a mostly steady rise since its IPO in September on the Nasdaq Stockholm exchange and is still up some 56% so far this year despite Thursday’s sell-off. In the US among the four big buyout firms, KKR’s stock is up about 17% so far this year to lead the way, while Carlyle Group is the weakest performer, trading down about 18%.

Its market value, about 191.2bn Swedish Krona ($21.9bn), ranks EQT roughly in line with Apollo Global Management and ahead of Carlyle. Blackstone Group is worth more than $63.5bn, followed by about $30bn for KKR.

EQT benefited from strong investor demand in the wake of its IPO. At the time of the float, EQT said that the issue was more than 10 times oversubscribed.

In June it agreed to sell its credit business to rival Bridgepoint for an undisclosed amount as it sought to focus on its core business of actively managing its portfolio companies. Last month it started charging management fees earlier than analysts expected on its new €14.75bn flagship PE fund, boosting the company’s earnings outlook.

While acknowledging the uncertain economic climate resulting from the pandemic, EQT’s chief executive Christian Sinding remains upbeat for the sectors in which the firm invests such as healthcare, infrastructure, and industrial technology. “We can clearly see that the deal market has started to pick up again…and we see a strong pipeline of…thematic opportunities,” Sinding said on the company’s earnings call.

This week EQT agreed to acquire Edgeconnex, a US-based data centre provider, for up to $3bn, according to a person familiar with the matter.

Still, some analysts and fund managers suggest technical factors related to EQT’s small public float and the stock’s inclusion in certain indexes may have unduly helped to drive the price higher, raising the prospect of a selloff in the event of a shock such as Thursday’s earnings report.

EQT was added to the OMX Stockholm Benchmark Index in December, requiring exchange-traded funds tracking the benchmark to buy the stock in line with its weighting in the index. But the discrepancy between the free float used as part of the calculation to determine EQT’s index weighting and the actual number of shares available to buy likely fostered demand in excess of supply among investors aiming to mimic the index and active managers worried about underperforming it, the market participants said.

Initially, EQT’s index weighting assumed 76% of its shares outstanding were publicly available. While that percentage has since dropped to 66%, the figures arguably should be smaller at 24%, according to FactSet, as many of the shares included in the larger free float number are subject to lockup agreements that limit holders from selling their positions up to three-to-five years from the IPO.

EQT’s stock price gained another technical boost in June following its addition to MSCI’s World Index and its other global investible benchmarks. Exchange-traded funds tracking those indexes don’t face the same shortage of available EQT stock since its weighing in those benchmarks is based on a 25% free float. Still, more than 30 ETFs track the world index alone, serving as potential new sources of demand for EQT’s stock.

Write to Ben Dummett at ben.dummett@wsj.com

From The Wall Street Journal

Source: https://www.penews.com/articles/buyout-firm-eqts-stock-slumps-as-earnings-disappoint-20200821

Private Equity

Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election.

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Alternative Investments/Real Estate: Housing Market Demand Is “Insane”

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Redfin CEO Glenn Kelman says the boom could last into next year.

Speaking to CNBC on Power Lunch, Glenn Kelman, CEO of real estate brokerage Redfin (NASDAQ: RDFN), said he expected the current boom conditions in the housing market to last well into next year. He attributed the high demand to affluent professionals looking for remote homes as well as low interest rates. Also, he thinks some sellers will put their properties on the market only after the presidential election. (CNBC)

Kelman: Too good to last forever

“This level of demand is absolutely insane. I would expect it to last into 2021, at least,” Kelman said.

Recent data from the National Association of Realtors shows up the strength in the housing market.

Existing home sales shot up 9.4% in September beating expectations. Even though the median purchase price of a home rose approximately 15% year over year, there is just a 2.7-month supply of for-sale homes, showing tight market inventory conditions.

The 30-year fixed-rate mortgage averaged 2.80% for the week ending Oct. 22, down from 2.81% in the previous week and 3.75% a year ago, according to the Freddie Mac Primary Mortgage Market Survey. Therefore, mortgage rates crept even lower in the latest week.

However, “there’s no way it can last forever,” Kelman warned of the bullish conditions.

Canada: Off the charts

Meanwhile, at the northern neighbor, home sales activity in September is described as “off-the-charts.”

Housing data released by the Canadian Real Estate Association (CREA) last week showed a nationwide year-over-year increase in sales of 45.6%.

This was a new all-time monthly record for the third month in a row.

“This is starting to sound like a broken record (about records being broken), but Canadian home sales and prices set records once again in September … as they did in July and August,” said Shaun Cathcart, senior economist at CREA, in a statement.

Real Estate ETFs in the U.S.

The year-to-date performance of some real estate ETFs is shown below:

iShares U.S. Home Construction ETF (ITB)              +24.61%

SPDR S&P Homebuilders ETF (XHB)                          +20.83%

Vanguard Real Estate Index Fund ETF                      -13.91%

It may be noted that despite the boom conditions in housing, real estate ETFs and stocks have declined in recent days.

According to Barron’s, this may be due to yields on the 10-year and 30-year Treasuries moving higher in recent weeks.

Other reasons could be fears of inflation ticking up in the future amidst an improving economic situation.

Nevertheless, the view is that interest rates are likely to remain low for longer. So demand may remain strong.

“Part of what is fueling this boom is that the economy has just split into two and rich people are able to access capital almost for free, so, of course, they’re going to use that money to buy homes,” said Redfin’s Kelman.

Related Story:   Mortgage Rates Set Another Record Low; Real Estate ETFs Could Benefit

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Source: https://dailyalts.com/alternative-investments-real-estate-housing-market-demand-is-insane/

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Private Equity

Asda’s new owner EG Group seeks new leadership ahead of IPO – report

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month

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UK grocer Asda Group’s new owner EG Group is looking for a new chairman and independent directors as it prepares for a £10bn initial public offering, The Timesreports.

EG Group is owned by the billionaire Issa brothers and the private equity firm TDR Capital, who teamed up for a £6.8 billion takeover of Asda last month.

The move comes after Deloitte resigned last week as the company’s auditor because of concerns over the group’s governance and lack of internal controls, according to the publication.

A decision on candidates will be taken before the end of this year, although roles haven’t been finalised yet as the company is in the process of deciding whether to float in the UK or the US, The Times reports.

Write to Barcelona editors at barcelonaeditors@dowjones.com

From Dow Jones Newswires

Source: https://www.penews.com/articles/asdas-new-owner-eg-group-seeks-new-leadership-ahead-of-ipo-reports-20201023

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Private Equity

Lone Star agrees £630m deal to buy UK’s McCarthy & Stone

The American private equity firm is expected to back the strategy of Britain’s biggest retirement housebuilder to build more homes for rent

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McCarthy & Stone said Friday, 23 October, that it has agreed to a £630m all-cash takeover by Lone Star Real Estate Fund VI.

Under the offer, accepting shareholders of the London-listed retirement-community builder will get 115 pence in cash for each share held, a 39% premium to its closing share price of 83 pence on Thursday, 22 October.

“The all-cash offer represents a compelling and attractive opportunity for shareholders to realise and crystallise their investment in McCarthy & Stone in the near term and also provides a meaningful premium to the prevailing share price notwithstanding the backdrop of the wider risks posed by the political and macro-economic environment,” McCarthy Chairman Paul Lester said.

Write to Ian Walker at ian.walker@wsj.com

From Dow Jones Newswires

Source: https://www.penews.com/articles/lone-star-agrees-630m-deal-to-buy-uks-mccarthy-stone-20201023

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