Bridgepoint rises as Citi upgrades stock, citing strong growth and undervaluation

Investing.com -- Bridgepoint Group (LON:BPTB) shares jumped over 5% on Wednesday following an upgrade from Citi Research, which raised its rating to “buy” from “neutral”, citing an attractive risk-reward profile after a period of underperformance. 

The British private investment company’s stock had lagged behind both sector peers and the broader market since the start of the year, despite what analysts at Citi described as a "highly constructive" full-year 2024 update.

Citi’s revised outlook includes higher forecasts for assets under management (AUM) and fee-related earnings (FRE), with expectations that Bridgepoint will achieve comparable FRE growth to its competitors. 

Analysts pointed to strong operating trends and upcoming potential catalysts, including the activation of ECP Fund VI and a strategic partnership with KKR, which is expected to drive significant revenue synergies.

The report highlighted that Bridgepoint shares are trading at a discount relative to historical averages and sector peers, despite robust earnings potential. 

The company currently trades at approximately 13.5 times its forecasted 2026-27 earnings, representing a 35% discount compared to larger competitors. 

Citi views this valuation as excessive given Bridgepoint’s solid financial trajectory, particularly as fee-related earnings continue to grow.

Fundraising expectations have also been revised upwards, with Citi now forecasting €25 billion in new commitments over the 2024-26 period. 

This includes substantial allocations to private equity, credit, and infrastructure, with a significant portion linked to the KKR partnership, which is expected to bolster ECP Fund VI. 

Citi analysts believe the company’s previous guidance for ECP VI fundraising was conservative and now anticipate commitments exceeding $6.8 billion.

On the earnings front, Bridgepoint reported strong growth, with net income projected to rise from £156.6 million in 2024 to £229.7 million in 2025, a 46.7% increase. 

Diluted earnings per share are expected to climb to 22.2 pence in 2025, reflecting a 44% year-on-year improvement. 

Additionally, the company maintains a healthy dividend outlook, with a forecasted yield of 3.2% in 2025, rising to 3.8% by 2027.

Citi’s updated price target for Bridgepoint stands at £4.10 per share, up from a previous estimate of £3.90. This implies a potential upside of nearly 30% from the last closing price of £3.21. 

Analysts see limited downside risks, emphasizing that Bridgepoint’s diversified portfolio, strong fundraising pipeline, and favorable fee structure position it well for sustained earnings expansion.

The broader European alternative asset management sector has faced headwinds this year, with shares underperforming financial stocks due to macroeconomic uncertainties. 

However, Citi maintains a positive stance on the sector, viewing an eventual rebound in fundraising activity as inevitable rather than a question of possibility. Given Bridgepoint’s current valuation, the company remains one of Citi’s preferred picks in the space.

Citi sees additional upside from Bridgepoint’s ability to scale its fundraising operations, optimize fee margins, and successfully execute its partnership strategies. 

While placement risk remains a consideration, analysts argue that the current market discount is unwarranted.