Apax Global Alpha Ltd (LON:APAX) was transparent in that 2024 was a below-average year for the company, with a total NAV return of 0.8% (-3.0% constant currency, including a 4Q total NAV return of 2.6% (-1.8% cc). By comparison, the five-year total NAV CAGR return was 8.3%. Problems in healthcare (no longer a core sector), and one portfolio company in particular, meant the strong average investee company EBITDA growth did not fuel NAV growth. However, the detail in the results bodes well, with i) investee companies delivering mid-teens EBITDA growth, and ii) the stock of 2025 exit-able businesses rising at a time of increased demand (potential exit uplifts). Long-term returns should be helped by accelerating new investment.
- Jam 2025-26: In our view, near-term growth in NAV will be fuelled by operational performance and a return to more normal exit activity, with the associated uplifts on exit. The drags seen in 2024 from problems at one investee company, cyclically sensitive stocks, and below normal exits should moderate.
- Jam beyond that: Our previous notes detail how Apax Global Alpha Ltd’s hidden gems strategy leads to investment in companies generating superior, long-term, through-cycle, EBITDA growth. Investment in 2024 (€166m) is nearly twice 2023 and calls of €205m are expected in 2025, building a deep, broad pool for value creation.
- Valuation: AGA’s discount to NAV (43%) is above that of peers (discount range 8%-32%). Apax Funds continue to see exit uplifts and the NAV is resilient to economic downturns, which, combined with the value creation through Apax’s hidden gems strategy, make the discount absolutely and relatively anomalous.
- Risks: Sentiment to costs, the cycle, valuation and over-commitment are sector issues. Residual risk on the listed positions is just 2% of NAV. The Debt portfolio generates additional returns and income towards dividends, and has liquidity/capital benefits, but complicates the story.
- Investment summary: Apax Global Alpha has delivered long-term market-beating returns by selecting businesses that it can transform post-acquisition. Buying these companies at a discount to peers (24%), accelerating their EBITDA growth and improving their margins, and then selling the reinvigorated business at a premium to those same peers (8% premium), is the playbook; Apax’s “mining the hidden gems” strategy, that has been repeated again and again. Investments are focused in sectors with structural growth and resilience. Capital flexibility is enhanced by the Debt portfolio. The discount is the “icing on the cake”.
