Carlyle Looks To Energy And Natural Resources

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BMO Capital Markets analysts David J. Chiaverini and Richard Fellinger rate The Carlyle Group LP (NASDAQ:CG) as Market Perform, arguing that the company will slow down in 2014.

The Carlyle Group LP (NASDAQ:CG) reported 4Q13 ENI per unit of $1.64 (BMO $1.06, cons. $0.88).

Impact & Analysis

Positive. Economic net income (ENI) was ahead of our estimates, owing to seven funds moving into an accrued carry position during the quarter, including Carlyle Asia Partners III and Carlyle Europe Partners III, the seven of which collectively increased net performance fees by more than $360 mn during the quarter. Funds accruing carry increased to 80% of the total, up from 57% in 3Q13. Distributable earnings of $1.18 per unit were ahead of our estimate of $0.78, owing to stronger-than-expected realization activity, and enabled the company to exceed its full-year guidance of achieving 2013 DE similar to 2012’s level.

Carlyle Group: Key takeaways from earnings

Key takeaways include 1) realizations of $6.3B were well ahead of our $3.6B as several deals were pulled forward from future periods; we expect realizations to slow in 2014 from a robust 2013, 2) performance of Carlyle’s carry funds for its CPE and GMS segments was generally in line with other alt managers delivering 9% and 10% returns, respectively, while its RA segment underperformed with a -1% return, 3) capital raised of $3.8B was just shy of our $4.3B estimate as Carlyle remains very successful in its fund raising; Carlyle Partners VI held a final close on $13B, ahead of its original target of $10B, and the company guided to $15- $20B of fundraising in 2014, and 4) capital invested of $2.2B was ahead of our $1.5B estimate and increased modestly from last quarter; The Carlyle Group LP (NASDAQ:CG) is seeing attractive opportunities in natural resources and energy investments.

Carlyle Group’s Valuation & Recommendation

We are lowering our 2014/2015 ENI estimates to $2.60/$2.80 from $2.70/$2.90, owing to higher assumed employee compensation. Our $35 target for The Carlyle Group LP (NASDAQ:CG) is based on a sum-of-the-parts valuation. We maintain our Market Perform rating.

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