EUR 442.45 For Business Accounts Only

Steep Valuations Dampen Upside in Asset Management IPO

After years of share price underperformance by Parent Investec Plc (INVP LN) against the FTSE 100 Index (-26.5% in the last year vs. -16.4% and -40.5% vs. -4.1% in five years, respectively), the management has decided to IPO its best-performing segment into an independent global asset management company, Ninety One Plc (N91 LN). Despite the separation being a positive move for the company, the current IPO price band shows very little upside on our Bull case.

Management Rationale...
The management has claimed that as change is a constant, the partial IPO of its global asset management business is a move to focus on the changing needs of its clients.

Our Take: A Good Move Asking a High Price...
We believe creating the independent asset manager is a positive move for the company. However, the asking price from investors seems high considering the phase of maturity for the business. Additionally, similar peers like DWS FP and AMUN FP are available at lower multiples of FY21E 9.5x compared to N91’s 10.1x at the lower price range.

The Edge View...
We believe N91’s IPO is a positive move, separating the best performing asset management arm from Parent Investec Plc (INVP LN). The CEO and his firm’s >20% stake ensures the management focuses on total shareholder return at N91 LN, and a 50% dividend pay-out provides steady returns to investors over a 3% dividend yield. Having said this, these positives do not justify the steep valuation in the IPO, which (even at the lower price range) demands a premium of 17.7% at 10.1x compared to the peer average of 8.6x in FY21E. At the higher price range, the premium comes to a staggering 45.6% at 2.5x on FY21E.