3/13/2019
Apollo Global Management LLC (NYSE: APO)
I've been hearing a lot about this company as a strong player in the large asset management area being a high-yield hedge-fund as others are also beginning to see weakness in the global economy and looking for safe harbor. It has a variable yield based on results but is an interesting basket of assets compiled by professional investors which, after fees & incentives, pays some amount quarterly.
This would fulfill a long-held desire I've had to get dividends out of a company like BRK or MKL rather than a prescribed dividend reinvestment plan used in those companies it allows me the option of deciding what I want to do with my money and when and as a value investor and market timer I'd much prefer. Potentially yielding simple cashflow as well.
Price at write-up $28.81
Indexes (30, 180 day looks)
VIX: 13.41 (15, 21)
TED:18.45 (31.29, 38.75)
S&P500: 2811 (2.41%, 6.03%)
Valuation Ratios
Target: $31
Apollo Global Management (APO) is an alternative private investment manager in private equity, credit, and real estate working on behalf of sovereign wealth funds, pensions, endowments, et cetera. It was founded in 1990 and became a publicly traded company around March 2011 and has been reasonably volatile since then, reasonably well reflected in today's Beta of 1.4 (where the S&P's volatility is 1). The asset management fees are variable and high for a passively managed basket of assets (typically less than 1% for anything worth owning with SPY having an expense ratio of 0.09%) with reported year-end values of 2017: 2.8, 2018: 1.2, 2019: 0.8, 2020: 0.6 (and I'd expect the final numbers for 2019+ to be higher with an expected range of 1-3%).
Most of APO's earnings come from private equity generally above 50% yearly, with real estate steady at around 2%, and credit around 30 to 40% with equity and credit fluctuating highly and inversely at the extremes. Total assets under management of 280.3 billion as of the end of 2018. APO has a contrarian value investment style, much like myself.
Insiders are selling above the $30 range while Tiger Global Management regularly buys in, particularly on Dips at sub-$28 levels and massive buys around $23.
My Thoughts
One thing I particularly like from the balance sheet is a lack of sales of fixed assets and irregular sales of mature investments with frequent purchases of investments. Less enthusiastic about the sale of stock (dilution), but in this sort of equity it can be a primary means to obtain cash to purchase assets. Sadly it's also often used to pay dividends and make ends meet in other ways - long term debt is less commonly used these ways - but from the cash flow statement it appears to use neither.
If things go well the price should reach the mid-30s, if things go poorly expect slightly below a $20 share price.
Risks
Apollo Global Management LLC (NYSE: APO)
I've been hearing a lot about this company as a strong player in the large asset management area being a high-yield hedge-fund as others are also beginning to see weakness in the global economy and looking for safe harbor. It has a variable yield based on results but is an interesting basket of assets compiled by professional investors which, after fees & incentives, pays some amount quarterly.
This would fulfill a long-held desire I've had to get dividends out of a company like BRK or MKL rather than a prescribed dividend reinvestment plan used in those companies it allows me the option of deciding what I want to do with my money and when and as a value investor and market timer I'd much prefer. Potentially yielding simple cashflow as well.
Price at write-up $28.81
Indexes (30, 180 day looks)
VIX: 13.41 (15, 21)
TED:18.45 (31.29, 38.75)
S&P500: 2811 (2.41%, 6.03%)
Valuation Ratios
| Price/Earnings (TTM) | - |
| Price/Sales (TTM) | x5.25 |
| Earnings per share | -0.21 |
| Price/Book (MRQ) | x6.94 |
| Price/Cash Flow (TTM) | x2032.59 |
| Held by institutions | 65.12% |
| Short interest | 2.78% |
| Dividend | 7.90% |
| MarketCap | $5.8B |
Target: $31
Apollo Global Management (APO) is an alternative private investment manager in private equity, credit, and real estate working on behalf of sovereign wealth funds, pensions, endowments, et cetera. It was founded in 1990 and became a publicly traded company around March 2011 and has been reasonably volatile since then, reasonably well reflected in today's Beta of 1.4 (where the S&P's volatility is 1). The asset management fees are variable and high for a passively managed basket of assets (typically less than 1% for anything worth owning with SPY having an expense ratio of 0.09%) with reported year-end values of 2017: 2.8, 2018: 1.2, 2019: 0.8, 2020: 0.6 (and I'd expect the final numbers for 2019+ to be higher with an expected range of 1-3%).
Most of APO's earnings come from private equity generally above 50% yearly, with real estate steady at around 2%, and credit around 30 to 40% with equity and credit fluctuating highly and inversely at the extremes. Total assets under management of 280.3 billion as of the end of 2018. APO has a contrarian value investment style, much like myself.
Insiders are selling above the $30 range while Tiger Global Management regularly buys in, particularly on Dips at sub-$28 levels and massive buys around $23.
My Thoughts
One thing I particularly like from the balance sheet is a lack of sales of fixed assets and irregular sales of mature investments with frequent purchases of investments. Less enthusiastic about the sale of stock (dilution), but in this sort of equity it can be a primary means to obtain cash to purchase assets. Sadly it's also often used to pay dividends and make ends meet in other ways - long term debt is less commonly used these ways - but from the cash flow statement it appears to use neither.
If things go well the price should reach the mid-30s, if things go poorly expect slightly below a $20 share price.
Risks
Weakening of the business and cred cycle would negatively impact APO's stock price, likely significantly if temporarily. It is less clear how much they would capitalize on the market opportunity themselves, but with $24.6 billion raised for Apollo Investment Fund IX it shouldn't be a problem.
Conclusion
I think this company is slightly overvalued because it's such a strong big player in its sector, but probably worth a shot at a small stake. I think I'll look for a starter stake at around $26 with an additional order around $23 the latter of which would require an additional December like correction that can't be considered very likely in the near term. Maybe we'll get some bad news in May. The $28 price range seems a fair price within the market however too high for me with its volatility and my global market expectations. The highest price I think would be reasonable would be around $27.50 which is close to the 60-day moving average, a price it could have been purchased for on 3/8.
I like them enough that I'm likely to pick up a teaser stake of less than 0.6% as I explore the due diligence equities I also uncovered in my research. It could easily be that media coverage has inflated its current value and with my anticipated market fluctuations picking up a small amount closer to $27.50 and whether that transacts or not re-evaluating in a month or so and, if positive, bring my stake closer to 1%. All other things being equal (and they never are) a sub-$20 price would likely spur me to pick up much more - although I'd expect them to cover their investment losses with stock issuance - but then hold after that classic dip scenario due to the potentially high yield associated with simply holding this strongly performing asset.
Due Diligence - AMG, OAK, ARCC, JHG, HTGC
Conclusion
I think this company is slightly overvalued because it's such a strong big player in its sector, but probably worth a shot at a small stake. I think I'll look for a starter stake at around $26 with an additional order around $23 the latter of which would require an additional December like correction that can't be considered very likely in the near term. Maybe we'll get some bad news in May. The $28 price range seems a fair price within the market however too high for me with its volatility and my global market expectations. The highest price I think would be reasonable would be around $27.50 which is close to the 60-day moving average, a price it could have been purchased for on 3/8.
I like them enough that I'm likely to pick up a teaser stake of less than 0.6% as I explore the due diligence equities I also uncovered in my research. It could easily be that media coverage has inflated its current value and with my anticipated market fluctuations picking up a small amount closer to $27.50 and whether that transacts or not re-evaluating in a month or so and, if positive, bring my stake closer to 1%. All other things being equal (and they never are) a sub-$20 price would likely spur me to pick up much more - although I'd expect them to cover their investment losses with stock issuance - but then hold after that classic dip scenario due to the potentially high yield associated with simply holding this strongly performing asset.
Due Diligence - AMG, OAK, ARCC, JHG, HTGC
Comments
Post a Comment