OZM theflyonthewall.com: Och-Ziff Capital added to Top Picks Live list at Citigroup
Citigroup added Och-Ziff Capital to its Top Picks Live list citing valuation and the company's new Partner Incentive Plan. Citi has a Buy rating on shares with an $11.50 price target. :t
OZM theflyonthewall.com: Blackstone removed from Top Picks Live list at Citigroup
Citigroup removed Blackstone (BX) from its Top Picks Live list in favor of Och-Ziff Capital (OZM) as it views Och-Ziff as the more near-term actionable idea. However, Citi keeps a Buy rating on Blackstone. :thefl
OZM upgraded by CITI..has a decent yield and heavy option activity
We add OZM to Top Picks Live. Retain $11.50 12-month target. Refine 2012-14 distributable EPS (DEPS) estimates.
Favorable three-legged revaluation thesis — First, we believe the newn Partner Incentive Plan (PIP) removes a significant overhang on the stock – see also our 8/2 note, 2Q12 Initial Look – Beat + Strong Flows For August + New Partner Plan Likely Less Onerous Than Feared. Second, flow traction should steadily build, reflecting strengthening model efficacy, broadening product/distribution/geography potential, plus rising HF allocations. Third, even after the ~12% bounce on 8/2 following unveiling of the new PIP, the stock offers deep value, with attractive yield in our view.
New PIP removes an overhang — As a follow-up to our 8/2 initial take on then agreement, we see two added benefits. First, the move significantly reduces insider selling overhang, as the 12 pre-IPO partners, who collectively own ~300M units, or ~66% of total, can now only sell about 10% per year, versus 75% of the allotment as of 11/12. Second, ex the founder, CEO + Chairman (Dan Och) – who did not elect to participate in the PIP – ten of the remaining 11 pre-IPO partners elected to participate, which should further reduce execution risks. The new incentive plan is fully discretionary suggesting solid alignment across employees/unit-holders.
Net flows might start to see multiple drivers — We see incrementaln potential for volumes to build off of: a) further stabilization in FOF, heretofore major redemption pressure point; b) leverage into Europe & Asia, where OZM continues to heavily invest (though ST volumes likely lumpy); and, c) new credit initiative seems to be gaining traction – roughly 50% of $800M August flows reflect CLO win, for instance. In turn, our Prime Finance business projects another $1T in HF mandates over the next few years, and we believe OZM is well poised to garner share.
Despite bounce, outsized upside with nearly 12% yield — Assuming 14x FREn P/E, estimate current valuation assumes just 3% portfolio return CAGR. Seems overly conservative. Stock still down 5% YTD despite: a) AUM + 5%; and, b) better lead indicators vs. year ago. 40% upside to target highest among Alts, with OZM on pace for $0.90+ 2012 distribution, or nearly 12% prospective yield. See 12%+ 2013 yield, even after modest PIP-related dilution building to 14% in 2014.