Inside Carlyle’s Bottomed-Out Valuations in 1Q16


Aug. 18 2020, Updated 5:15 a.m. ET

Competitive dividend yields

Carlyle Group’s (CG) stock has fallen by ~46% over the past year on the declining valuations of its holdings due to the global slowdown and struggling energy markets. Alternative asset managers have posted losses in recent quarters due to the global equity rout, slowing growth, and slowing emerging markets.

The company generated subdued distributable earnings through lower exits. In 1Q16, it declared a dividend of $0.26 per share, as compared to $0.33 in 1Q15 and $0.29 in the previous quarter, translating into an annualized dividend yield of 6.3%. This compares to its competitors, which had the following yields:

  • Blackstone (BX)—4.2%
  • KKR (KKR)—4.8%
  • Apollo Global Management (APO)—6.6%
  • T. Rowe Price Group (TROW)—2.9%

Together, these companies account for 0.72% of the Financial Select Sector SPDR ETF (XLF).

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Carlyle Group is valued at 9.6x on a one-year forward earning basis, as compared to its peers, which are trading at an average of 10.4x. The company’s valuations have declined over the past couple of fiscal quarters on concerns related to the operating performance of its portfolio. The company was trading at 9.1x on a forward price-to-earning basis in May 2013.

Alternative asset managers have been deploying a significant amount of capital over the past few quarters, despite challenging market conditions benefiting from lower valuations and attractive pricing. Carlyle has enough dry powder to take advantage of mispriced assets domestically as well as internationally. The company deployed ~$8 billion of capital in the past six months and ~$11 billion in past 12 months.

Key diversification

Given recent pronouncements from the Fed, which have signaled a slower rise in federal funds interest rates, strength in equity, credit, and commodity markets suggest balanced risk for the company. The key for Carlyle, of course, will be in diversification among the right sectors and in seeing how fast can it invest a substantial portion of its dry powder.

Notably, the company has invested in Veritas Holdings, a global supplier of information management software, Hunkemoller in the Netherlands, Comdata in Italy, Saverglass in France, TestPlant limited in the UK, and two healthcare-related assets in China.

But the company needs to diversify more by increasing its offerings in divisions such as credit, hedge funds, and some traditional offerings to attract a higher share of new capital.


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