Can Carlyle Recover from Its Discounted Valuation?



Discounted valuations

Carlyle Group’s (CG) one-year forward PE (price-to-earnings) ratio stands at 7.58x, as compared to the peer average of 9.74x. Carlyle is now trading at a discount to its peers due to losses realized in the company’s Hedge Fund Solutions and GMS (Global Market Strategies) segments. Lower-than-expected performances in real estate credit and opportunistic credit have driven this discount in valuations.

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CG is expected to recover in coming quarters, however, mainly due to its expected improved performance in its Private Equity segment, backed by a positive and favorable fundraising environment. In 2H17, a significant amount of fundraising is expected of CG, and this should improve the company’s valuation.

On a pre-tax basis, the company reported DE (distributable earnings) of $55 million in 1Q17, as compared to $128.6 million in 1Q16. Blackstone’s (BX) one-year forward PE ratio stands at 10.99x, while its trailing PE ratio stands at 15.72x. Below are CG’s peers’ one-year forward PE ratios:

  • Apollo Global Management (APO): 10.85x
  • KKR (KKR): 8.83x
  • Alliance Bernstein (AB): 10.47x

Expected valuations

CG has a positive outlook of its valuations due to the recent improvements its seeing in the economy and the performance of its portfolio companies. Carlyle saw higher numbers in fee-related earnings in its GMS segment, for example, reporting $3 million in 1Q17, as compared to -$1 million in 1Q16.

Notably, Blackstone (BX), Apollo Global Management (APO), and KKR (KKR) together account for 4.67% of the PowerShares Global Listed Private Equity ETF (PSP).


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