The Carlyle Group (CG) — the private equity giant — recently released its first quarter results, reporting $690 million in revenue, down 20% YoY, compared to $860 million a year ago, notes Todd Shaver, editor of Bull Market Report.
It reported a profit of $430 million, or $1.01 per share, up from $270 million, or $0.63, beating consensus estimates on the top and bottom lines, driven by robust asset sales and capital market activity across its private equity funds and portfolio.
These numbers may look out of whack, with revenues dropping and profits rising so much, but year-over-year comparisons are very tough for any firm in the private equity sector. One could make an argument that these firms shouldn’t report year-over-year comparisons because they don’t operate like a normal growth company.
A company like Carlyle might make five large transactions in a given year. And then the next year might do three. Then in the following year, they might do 10. See what we mean here? Private equity firms should be evaluated on their overall profit level over a longer period, say 3-5 years, and their asset base — how has it grown over the past few years.
This was an eventful quarter for the firm, with $5 billion in fresh deployments, up from $3.8 billion a year ago, followed by proceeds of $5.9 billion, compared to $4.3 billion the prior year. This includes the company selling its stake in McDonald’s local Chinese business, and the UK-based oil firm Neptune Energy, helping Carlyle generate a net profit of $400 million, an increase from $165 million the prior year.
Despite a strong global equity market and a rebound in M&A activity, the firm’s corporate private equity portfolio ended the quarter flat, with its global credit funds appreciating 2%, real estate funds by 1%, and secondaries gaining a remarkable 5%, on a YoY-basis. The private equity fund came in lower than the broader industry, with peers such as Blackstone seeing a 3.4% growth during the quarter.
Carlyle raised $5.3 billion in capital during the quarter, as opposed to net outflows during the same period last year, bringing total assets under management (AUM) to $425 billion, up 12% YoY. Of this, $300 billion are fee-earning assets, $90 billion in perpetual fee-earning capital, and $76 billion in dry powder, capital available for investment, up 3% YoY, which is set to be deployed over the coming years.
Following a phenomenal 36% rally last year, and 6% this year so far, the stock is still fairly undervalued, trading at just over 6 times earnings. The company is amid strong tailwinds in favor of alternative asset management and is rewarding shareholders generously with $150 million in stock repurchases and an annualized yield of 3.4%. It ended with $1.7 billion in cash and $9.3 billion in debt.
Our Target is $53 and our Sell Price is $34. The stock is trading at a discount compared to where we believe it should be. While it reached an all-time high of $60 in 2021, the company has grown significantly since then, with AUM increasing from $300 billion to $425 billion. We believe the stock will recover and reach this level again in the coming years.
