The Regal Partners Alternative

Small Caps | Jun 17 2024

This story features REGAL PARTNERS LIMITED. For more info SHARE ANALYSIS: RPL

Alternative asset manager Regal Partners has enjoyed impressive organic and inorganic funds under management growth in recent years and brokers see more ahead.

-Regal Partners continues to enjoy impressive growth
-Alternative managers under-appreciated in Australia
-Ongoing acquisitions add to funds under management
-Solid investment performance

By Greg Peel

Regal Partners ((RPL)) is a specialist alternative investment manager, managing a broad range of investment strategies covering long/short equities, private markets, real and natural assets and credit and royalties on behalf of institutions, family offices, charitable groups and private investors. 

In April, Regal Partners reported March quarter flows in line with Ord Minnett’s forecasts, with higher-than-expected funds under management (FUM) growth of 9.8% due to good investment performance and supportive markets, aided by two mandate wins previously flagged within the Long/short equities segment. Gains were partially offset by the closure of Hong Kong-based East Point Asset Management, with $135m of FUM.

Elsewhere, Regal saw solid demand for its new Private Fund in the multi-strategy segment.

Looking forward, Ord Minnett remained positive on Regal’s ability to grow net flows given strong investment performance across a range of products and strategies, retaining a Buy rating.

Earlier this week, Regal announced it is to acquire 100% of Merricks, a leading alternative investment manager focused on private credit investments across commercial real estate, agriculture, and other assets.

The headline purchase price is -$235m, being paid with $40m in cash and 63.9m shares at $3.05/share. This appears to Bell Potter to be a good deal, adding $2.9bn of FUM in attractive areas. The price looks reasonable to the broker at 6.5x historic earnings, noting Regal shares were trading on an estimated 9.8x prospective earnings prior to the deal being announced.

The broker notes the acquisition of Merricks will add to FUM, is enhancing to earnings per share, and does not create an immediate overhang of stock. Bell Potter believes Regal shares will rise further as investors take note of the increased scale and diversity and the potential upside from net flows and new fund launches. The broker continues to favour Regal Partners, given its strong organic and inorganic growth potential, and entrepreneurial culture.

Bell Potter has a Buy rating.

Morgans last week initiated coverage of Regal Partners with an Add rating. This broker notes 2024 to date has seen record performance and strong FUM inflows, which may see the manager deliver some of the best performance fees since 2021 when the business was less than half its current size.

More importantly, says Morgans, recurring management fees from FUM growth continue to build. Through a mix of organic growth and acquisitions, Regal has grown FUM to $15.1bn, representing a 133% pa compound annual growth rate since June 2022.

Excluding acquisition FUM, Regal has organically grown an impressive 36% pa CAGR, delivering an additional $2.4bn of new FUM since June 2022, seeing the broker’s forecast 2024 base management fees double on 2022.

Whilst challenging to forecast, Regal has demonstrated a history of performance-led FUM growth, the broker highlights, augmented by four transformative acquisitions, being VGI, PM Capital, Taurus and Merricks.

Alternative asset managers attract a higher PE multiple than listed equity managers, notes Morgans. Alternatives remain under-allocated in the Australia-Pacific region, where Alternative Assets Under Management stand at around 9% of GDP versus the US at 26% and Europe at 16%.

Morgans has opened with a $4.70 price target for Regal Partners. Bell Potter raised its target to $4.75 from $4.03.

This morning Ord Minnett updated with an increased price target of $4.20 (up from $3.70) and an unchanged Buy rating.

This broker’s earnings forecasts were upgraded by 11-23% due to the Merricks acquisition (effective August 1) and increased performance fee expectations.

Separately, Ord Minnett highlighted how PM Capital’s Global Companies fund is maintaining its outstanding investment performance. It’s felt this fund provides the largest area of flow potential for Regal Partners over the medium-term.

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