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Understanding Carlyle’s Valuation

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Discounted valuation

Carlyle’s (CG) NTM (next-12-month) PE (price-to-earnings) ratio of 8.1x is lower than peers’ average of 11.4x, implying that its valuation is lower. Peers (XLF) Ares Management (ARES), Oaktree Capital (OAK), and KKR (KKR) have NTM PE ratios of 12.9x, 11.6x, and 9.6x, respectively. In 1Q18, Carlyle’s total revenue fell substantially quarter-over-quarter, and the company’s carry fund appreciation fell year-over-year to 3% from 6%, which may have impacted the company’s valuation.

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What could affect Carlyle moving forward

Unfavorable momentum in the global economy might impact Carlyle’s business. The company’s fundraising activities are sensitive to equity market fluctuations, as investors may not advance funds. Equity markets also affect the company’s total assets under management, upon which its fees depend.

1Q18 saw significant equity market volatility due to global tensions, and Carlyle was also affected by news regarding the Fed’s interest rate changes. Carlyle’s LTM (last-12-month) price-to-earnings ratio is 7.2x, while peers Ares Management, Oaktree Capital, and KKR have LTM PE ratios of 35.6x, 9.9x, and 10.0x, respectively.

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