Onex Corporation (ONEX) announced a robust performance for 2023, characterized by significant investment gains, effective capital distribution, execution activities, and strategic progress.
The company achieved a 4% return in the fourth quarter and an 11% return throughout the year. Onex’s private equity operations were particularly active, distributing $800 million and realizing $1.7 billion in gains over the year. Following the completion of the ASM sale, the company expects an additional $850 million in returns.
Onex strengthened its leadership by appointing Tawfiq Popatia and Nigel Wright as co-presidents of Onex Partners and successfully completed the initial investment period for OP5. The credit business of the company performed exceptionally well, accumulating over $2.8 billion in assets under management (AUM) and yielding a 24% return on invested capital.
Key Takeaways:
- Onex reported a strong quarter with a 4% return in Q4 and an 11% return for the entire year.
- The company invested $800 million in private equity and realized $1.7 billion in 2023.
- An additional $850 million in returns is expected after the completion of the ASM sale.
- Tawfiq Popatia and Nigel Wright were appointed co-presidents of Onex Partners.
- Onex’s credit business gathered AUM of over $2.8 billion, yielding a 24% return on invested capital.
- The company concluded the year with $107.82 per share of invested capital and $1.5 billion in cash and cash equivalents.
- Distributable earnings were $139 million for Q4 and approximately $800 million for 2023.
Company Outlook:
- Onex is making progress in marketing its liquid and private products in the high-net-worth market in Canada.
- The private equity portfolio provided a 5% return in Q4 and a 12% return for the year, while credit investments yielded a 24% return.
- Fee-related earnings suffered losses throughout the year, but distributable earnings remained strong.
- The merger and acquisition environment is improving for private equity, potentially leading to further capital returns and distributions.
Highlights in the Bear Market:
- Despite a decline in revenues, the decrease was balanced by a reduction in distribution costs.
- Fee-related and distributable earnings incurred a loss of $2 million in Q4 and $14 million for the year.
Highlights in the Bull Market:
- Unrealized carried interest increased by $41 million in Q4, primarily due to net gains in OP V.
- Convex investment is expected to offer multiple earning opportunities.
Shortcomings:
- Earnings activity progressed slower than anticipated.
Q&A Highlights:
- Graham Ryding, Chris Govan, and Bobby Le Blanc were questioned about a possible fee reduction for ONCAP V, which will be further explored.
- Chris Govan attributed the increase in expenses on the private equity side to the expansion of Onex’s transportation platform and growth in ONCAP.
- Bobby Le Blanc highlighted the slow progress in Falcon and discussed expectations for resource generation in 2024, emphasizing success in the credit platform and progress in ONCAP.
Onex’s year-end financial position is robust, with the company having $1.5 billion in cash and cash equivalents and $107.82 per share of invested capital. The company’s asset management segment completed the quarter with $33.7 billion in AUM generating fees. Despite a challenging year for fee-related earnings, Onex generated a significant amount of distributable earnings, signaling a promising outlook for the company as it continues to navigate global markets and benefit from the improving M&A environment for private equity.
InvestingPro Insights: Onex Corporation’s (ONEX) latest performance update is complemented by data and insights from InvestingPro. The company’s market value stands strong at $5.91 billion, reflecting investor confidence in its business model and growth expectations. With a corrected P/E ratio of 7.69 as of the third quarter of 2023, Onex is positioned favorably compared to peers in the industry, indicating a potentially valuable investment opportunity.
InvestingPro Tips emphasize that Onex has sustained impressive dividend payments for 38 consecutive years, demonstrating commitment to shareholder returns even in challenging market conditions. Additionally, an expected increase in the company’s net income this year could be a significant driver for future stock performance.
InvestingPro Data measurements reveal a substantial 402.9% increase in earnings in the past twelve months as of the third quarter of 2023. This remarkable increase is evidence of the effectiveness of Onex’s strategy and operational implementation. The company also boasts a high gross profit margin of 81.93% during the same period, underscoring its ability to manage costs and sustain profitability.
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source: tr.investing.com / prepared by Melisa Beğiç