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4-Traders Homepage  >  Equities  >  Nyse  >  Blackstone Group LP    BX

Delayed Quote. Delayed  - 08/30 10:02:01 pm
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IPO OUTLOOK: Carlyle's Big Name May Not Generate Big Gains

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04/28/2012 | 01:48am CEST

--Analysts don't expect a meaningful first-day pop from Carlyle

--Its competitors, like Apollo and Blackstone, remain below their IPO prices

--Carlyle is pricing at a discount to its peers

--Investors in Carlyle could reap higher "true-up" dividends in the years the firm does well

(Updates throughout with more details about Carlyle's IPO.)

 
   By Lynn Cowan 
   Of   
 

A big, high-profile company is slated to go public this coming week, with private-equity firm The Carlyle Group L.P. planning to launch its IPO on Thursday.

What's not expected is a big, high-profile pop for the stock. In fact, investors are more likely to take an interest in the initial public offering of small retail clothing chain Tilly's Inc. a day later, though that won't stop a likely media frenzy over everything Carlyle, a storied name on Wall Street.

Founded in Washington in 1987, it bills itself as an alternative asset manager with the greatest presence around the world and in emerging markets. It has $147 billion in assets under management, owns stakes in more than 200 portfolio companies, and operates 89 funds and 52 funds-of-funds across six continents.

The problem with Carlyle for IPO investors isn't its size or its reputation, it's that the company is in an industry that has repeatedly failed to deliver decent stock gains after launching IPOs. Peers like Blackstone Group L.P. (>> The Blackstone Group L.P.) and Apollo Global Management LLC (>> Apollo Global Management LLC) are still trading below their IPO prices set in 2007 and March 2011, respectively.

Carlyle, during its marketing road show over the past week, has been making the case that it isn't like the others but analysts say they aren't convinced.

"They are trying to present themselves as a company that's different than Apollo and Blackstone. People still don't seem to think that the leopard has changed its spots, though," said John Fitzgibbon, president of research firm IPOScoop.com.

What is different is the valuation Carlyle is seeking, especially compared to the lofty amount Blackstone commanded in 2007--a price that Blackstone now trades 57% below. Carlyle is looking for a valuation that puts it at a discount to Blackstone's current level.

The deal "will likely perform very much like all the others prior," concurred Scott Sweet, managing director of research firm IPOBoutique.com. "They are saying they are different in many ways, but the fact is, they are very similar."

One major issue for investors in asset managers like Carlyle is that their interests can conflict with the firms' clients: the people who invest in private-equity funds. Like debt asset manager Oaktree Capital Group LLC (OAK), which declined on its first day of trading earlier this month, Carlyle warns that its first priority is to the interests of its fund investors, and it could make decisions that would reduce revenue in the short term, such as limiting the assets under management that it oversees or reducing management fees.

For investors who do buy into Carlyle, however, there is the promise of sharing the firm's higher distributable earnings during good years. While the company has set a quarterly dividend of 16 cents that would result in a 2.7% annual dividend yield at the midpoint of its IPO price range, the company will also be making a separate annual "true-up" dividend at the end of each year. Last year, that amount would have resulted in a total annual dividend yield to shareholders between 7.6% to 9.3%.

While Carlyle's deal grabs the headlines, a smaller offering from teen and young-adult retailer Tilly's is probably going to trade higher on the first day, according to Sweet. The company, which sells what it calls "West Coast inspired" clothing and accessories, including its own brands and national brands like Billabong and Hurley, wants to raise $108 million by listing as TLYS on the New York Stock Exchange.

It operates 140 stores in 14 states, but is concentrated in California. It plans to expand its list of stores, all of which are leased, from 140 locations to 500 in the next 10 years, adding at least 21 net new stores in fiscal 2012, which ends in January.

In fiscal 2011, which ended Jan. 28, net sales rose 20% to $401 million, and net income rose 41% to $34 million, compared with fiscal 2010. Comparable store sales increased 10.7%.

There are three other offerings expected this coming week: online lender EverBank Financial Corp., propylene producer PetroLogistics L.P., and Supernus Pharmaceuticals Inc. Investors hoping for a strong pop from this trio should probably look elsewhere.

EverBank Financial Corp., seeking $353 million on the NYSE as EVER, is receiving slightly higher marks than the other two from analysts. The bank, which primarily services its 575,000 customers online, says its deposit customers are typically mass-affluent people--a category it defines as individuals with more than $250,000 in net worth--as well as small and medium-sized businesses.

But EverBank says in its prospectus that origination and servicing of residential mortgages is a "significant" component of its business. As a mortgage lender, EverBank faces regulatory challenges related to foreclosure practices in the industry.

In 2011, the company's total interest income declined by 4% to $588 million, primarily due to a decrease in interest earned from its investment securities portfolio. Higher noninterest expenses, such as salaries, equipment and administrative costs, pulled the company's bottom line lower, and it reported net income of $53 million, down 72% from a year earlier. Many of the higher costs were related to acquisitions the company made.

Propylene producer PetroLogistics is seeking to raise $735 million on the NYSE as PDH. The company processes propane into propylene, a petrochemical used in a variety of products, ranging from building materials to consumer products.

PetroLogistics says it is enjoying the wider price spreads between low natural-gas prices, from which propane is derived, and high oil prices, which are related to higher propylene prices.

The company, which began operating its facility in 2010, currently has multiyear contracts for the sale of its propylene with a range of major chemical companies, including Dow Chemical Company (DOW) and Total SA's (TOT) Total Petrochemicals USA Inc. In 2011, it reported sales of $615 million and net income of $22 million, compared to sales of $30 million and a loss of $40 million in 2010.

A leftover from last week is also on the calendar, trying to get done this week. Unprofitable, early-stage drug developer Supernus Pharmaceuticals Inc. has lowered its sights to $5 a share from its original range of $12 to $14, and is now seeking to raise $55 million on the Nasdaq as SUPN.

-By Lynn Cowan, Dow Jones Newswires; 202-257-2740; lynn.cowan@dowjones.com

Stocks mentioned in the article : The Blackstone Group L.P., Apollo Global Management LLC
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Financials ($)
Sales 2016 5 281 M
EBIT 2016 2 677 M
Net income 2016 2 559 M
Debt 2016 -
Yield 2016 6,41%
P/E ratio 2016 12,37
P/E ratio 2017 10,49
Capi. / Sales 2016 6,23x
Capi. / Sales 2017 4,81x
Capitalization 32 893 M
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Average target price 32,2 $
Spread / Average Target 17%
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Stephen Allen Schwarzman Chairman & Chief Executive Officer
Hamilton Evans James President, Chief Operating Officer & Director
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William Murphy Chief Technology Officer & Senior MD
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