KKR Posts Flat Q2 Earnings, Assets Under Management Jump 8% to $222 Billion; Target Price $40

KKR & Co Inc, an American global investment company that manages multiple alternative asset classes, reported that its second-quarter after-tax distributable earnings per adjusted remained flat compared to last year and net income surged 36% to $698.6 million, sending its shares up over 2%.

U.S. private equity firm said its after-tax distributable earnings per adjusted share of $0.39 for the second quarter of 2020 are flat compared to the second quarter of 2019. Revenue for the quarter ended June rose to $1,332.0 million compared to $1,179.9 million last year.

The leading global investment firm said its revenues for the six months were $330.5 million compared to $2,367.3 million in Q2 2019. The decrease is primarily driven by mark-to-market net carried interest losses in the current period due to economic and market impacts of COVID-19 and a decrease in transaction fees.

U.S. private equity firm said its new capital raised in the quarter was $16 billion, a record quarterly figure for KKR, driven by fundraising across Asia Private Equity, Asia Infrastructure, Core Plus Real Estate and Dislocation strategies, the company said.

KKR said its assets under management and fee-paying assets under management rose 8% and 6% to $222 billion and $160 billion, respectively, over the last 12 months.

At the time of writing, KKR & Co shares were trading 2% higher at $36.49, up over 25% so far this year.

KKR & Co stock forecast

Thirteen analysts forecast the average price in 12 months at $37.38 with a high forecast of $41.00 and a low forecast of $30.00. The average price target represents a 3.89% increase from the last price of $35.98. From those 13, ten analyst rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $35 with a high of $55 under a bull scenario and $15 under the worst-case scenario. Credit Suisse raised its price target to $34 from $33.

Several other equity analysts have also updated their stock outlook. Citigroup raised the target price to $40 from $37.5. KKR & Co had its target price upped by Deutsche Bank to $32 from $31. KWB raised their target price to $41 from $34, Evercore ISI raised its target price to $38 from $34 and Jefferies upped it to $36 from $33.

We think it is good to buy at the current level and target at least $40 in the short-term as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“While we see an attractive organic asset growth trajectory, we also see a recessionary backdrop that raises the risk to KKR’s fee-related earnings growth story if fundraising slows, transaction fees stall, and costs don’t flex as performance fees and investment income decline,” said Michael Cyprys, equity analyst at Morgan Stanley.

“Recessionary backdrop raises the risk of balance sheet marks and limited book value growth that could dampen prior ROE generation of mid-teens to 20%+. C-corp structure (as of July 1, 2018 ) with no K-1s should help expand the investor base over time,” he added.

Upside and Downside risks

Faster deployment with greater opportunity set; Accelerated portfolio exit activity; Stronger fundraising boosted by seeding of new strategies and Better balance sheet marks than feared, Morgan Stanley highlighted as upside risks to KKR & Co.

Deeper recession that leads to weaker investment returns, balance sheet markdowns and delays harvesting of investments pressuring earnings and increased political and regulatory scrutiny of PE business model, were the major downside risks.

KKR-led Group Invests $650 Million in Vietnam’s Property Developer Vinhomes

A group led by KKR, an American global investment firm, has invested $650 million in Vietnam’s largest property developer Vinhomes JSC, marking the deal one of the biggest private equity investments in south-east Asia.

KKR, a firm that manages investments across multiple asset classes, has said the deal underscores the attractiveness of Vietnam as an investment destination with strong economic growth projected this year when the whole world is battling with the novel coronavirus.

Vietnam has recorded zero COVID-19 death so far despite having a population of around 100 million.

Ashish Shastry, co-head of private equity for KKR Asia Pacific and head of Southeast Asia, said in a press release, “We are truly honored to have the opportunity to invest in a successful, leading business like Vinhomes which is an integral part of the consumer services ecosystem within the Vingroup family.

“This investment exemplifies the type of platinum brands and management teams KKR looks to work within Southeast Asia. Today’s announcement further underscores our strong commitment to Vietnam, where KKR has been active and present for nearly a decade.”

KKR has $207 billion in assets under management.

Singapore state-owned company Temasek Holdings, a partner in the consortium with KKR, has bought a total 6% stake in Vinhomes, a subsidiary of Vingroup.
Cherishing the announcement, Vinhomes shares closed 7% higher on Tuesday at 74,900.00 dong. A similar upside is expected from KKR in the U.S. session as well.

Nguyen Dieu Linh, chairwoman of Vinhomes said in a press release, “We are pleased to welcome KKR as a shareholder in Vinhomes, and believe that the investment demonstrates the confidence of international investors in Vinhomes, Vingroup and the Vietnamese market.

“As a reputable, world-class institution, KKR’s expertise and proven track record of helping companies achieve long-term success will be valuable as we work together to enhance value for Vinhomes shareholders.”

KKR shares closed 3.29% higher at $30.11 on Monday. The stock price has recovered all of its coronavirus -induced losses and gained over 3% so far this year.

According to Tipranks, ten analysts forecast the average price in 12 months at $31.89 with a high of $39.00 and a low of $21.00. The average price target represents a 5.91% increase from the last price of $30.11.

It is good to buy at the current level as 100-day Moving Average and 20-200-day MACD Oscillator signal a strong buy opportunity; target $33 in the near-term with a stop loss of around $27.