KKR: Lowly Valued Buyout Pioneer with Rock-Solid Balance Sheet

Yaron Naymark of 1 Main Capital presented his in-depth investment thesis on KKR (US: KKR) at Wide-Moat Investing Summit 2019.

Thesis summary:

KKR is one of the premier alternative asset management franchises, benefiting from a secular shift of institutional capital towards its investment strategies. The company’s earnings are depressed due to recent income statement and balance sheet investments that support growth into adjacent business lines, which significantly increase KKR’s addressable market. As the newer businesses continue to scale, KKR should see increases in revenue and operating margins, which should drive earnings higher from current levels. Importantly, the company has more than half of its $20 billion market cap in net cash and investments, has strong visibility into a growing recurring fee income stream, and is over forty percent owned by insiders. Additionally, some of its largest peers have announced an intention to follow in KKR’s footsteps by converting to C-corps from partnerships, which should draw more institutional awareness and interest to the space. Putting it all together, KKR trades at a low starting valuation on both book and earnings, and has a credible path to growing both of those metrics at a teens pace over the coming five to ten years, which should lead to strong returns even without getting the multiple expansion that this well-positioned franchise likely deserves and might eventually get.

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About the instructor:

Yaron Naymark is the founder and portfolio manager of 1 Main Capital, a boutique investment firm founded in 2018 that seeks to make concentrated investments in high-quality, reasonably valued businesses with long reinvestment runways, and special situations undergoing an element of change or temporary dislocation that will cause investors to revalue an investment in the near term. Prior to founding 1 Main Capital, Yaron spent ten years analyzing businesses professionally, including at multi-billion-dollar value-oriented public and private equity firms. Yaron is a South Florida native, a lover of the outdoors, and currently lives in New York City with his fiancé and dog.