Founded in 1976, KKR & Co. (KKR) is a leading global investment management firm; it manages assets through a variety of investment funds and accounts covering multiple asset classes, mostly private equity, explains Stephen Biggar, at Argus Research.
In February 2021, KKR acquired Global Atlantic Financial Group Ltd., a retirement and life insurance company, for about 1.0-times Global Atlantic’s book value. The operations were a significant addition to KKR’s business, as they increased fee-paying assets under management (AUM) by 48%.
In April 2021, the company held an Investor Day, its first since July 2018, in which it highlighted strong growth in fee-related earnings. KKR intends to focus on the large addressable end markets of traditional private equity, real estate, infrastructure, alternative credit, leveraged credit, and hedge funds.
KKR’s primary asset is a portfolio of investments with a fair value of about $17.7 billion as of September 30, 2022, of which 54% were classified as private equity, 24% as real estate, and 11% as credit.
Between December 31, 2021 and October 28, 2022, KKR spent $412 million to buy back 6.5 million common shares, including purchases made in the open market and to retire equity awards.
An investment in KKR carries substantial risks. In short, investors in KKR are betting that the company’s outstanding investment track record will continue in the future.
Alternative asset managers are an admittedly difficult group to value. Realized gains and carried interest are difficult to predict. However, the company’s change to corporate status in 2018 has simplified its reporting structure.
We believe that book value and multiples on distributable earnings are useful valuation tools. KKR’s book value was $26.56 per share as of September 30, implying a price/book multiple of 1.9.
The stock trades at 11.7-times our 2023 distributable earnings estimate, below the DE multiple of larger rival Blackstone Group. Our target price of $74 implies a multiple of 17-times our 2023 DE estimate, closer to the peer average.
