On Friday, CVC Capital Partners (WA:CPAP) plc (CVC:NA) experienced a shift in stock rating as Citi downgraded the investment firm from Buy to Neutral. The new price target set by the analyst is EUR22.60, a slight increase from the previous EUR22.20. This adjustment follows CVC's third-quarter update on assets under management (AUM), which resulted in a marginal decline in share value of approximately 0.6%, after initially dropping by up to 5%.
The analyst expressed a positive outlook on CVC's future, acknowledging the company's high-quality franchise. However, the recent re-rating spurred by an unexpected index inclusion has pushed CVC's shares to trade at multiples of 26-30 times the forecasted FY24-27E fee-related earnings (FRE).
This valuation aligns with the upper range of its European counterparts. Despite this, the analyst suggests that the potential for near-term growth in share price may be constrained.
CVC's current valuation reflects its strong market position, yet the analyst indicates that significant medium-term changes to earnings estimates are unlikely due to a modest reduction in the FY24E earnings forecast. The forecast adjustment was attributed to a lower-than-anticipated performance-related earnings (PRE).
The updated price target of EUR22.60 is based on a projected 29-33 times FRE multiple, which implies an expected total return (ETR) of 10%. The analyst highlighted that while there is potential for earnings to surpass expectations in FY26 and beyond, the immediate prospects for a rise in share price appear limited.
The report concluded with an emphasis on the limited near-term catalysts for CVC's stock and the anticipated moderate upside to consensus earnings for FY25E. With these factors in mind, Citi's revised rating reflects a more cautious stance on the investment firm's short-term investment potential.
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