By Michael Vodicka
by the biggest and most successful companies. In technology, there is Google
) and Amazon
). In energy, companies such as ExxonMobil
) and Conoco Phillips
) reign supreme.
But every once in a while, a new guy comes along and shakes things up. And that's what's happening in the private-equity space right now. Since the 1980s, this industry has been dominated by stalwarts such as the Blackstone Group
) and Kohlberg Kravis Roberts & Co.
). But the newest player in the private-equity scene is burning up the charts and putting its competition to shame.
In fact, this company's investments have been so successful, shares have been surging higher -- up 110% in just the past 12 months.
Take a look at the chart below.
The stock I am talking about is Apollo Global Management
), a private-equity and investment consulting firm that was founded in 1990 but went public only two years ago. Led by billionaire private-equity mogul Leon Black, the company has put together an impressive string of investments that have produced big returns.
In early April, the company said it stands to make a five-fold return on its investment in the Puerto Rico-based payment processor Evertec, with an initial public offering (IPO) scheduled for mid-April. Apollo purchased 51% of Evertec 2010 for $184 million; that investment is now valued at $700 million, which doesn't include another $160 million Apollo has received in dividends.
Apollo has seen incredible returns on other investments as well, with its NCL Corp
) IPO up more than 60% and Realogy Holdings Corp.
) IPO up more than 40%.
The firm's current private-equity pool, Apollo Investment Fund VII, was producing a net 26% internal rate of return at the end of 2012 -- after capitalizing on distressed opportunities created from the 2008 financial crisis, according to Bloomberg. Apollo's $10.1 billion Fund VI, invested during the 2006-08 surge in buyout transactions, carried a 9% return rate.
Those amazing returns have already had a big effect on Apollo's bottom line. But looking forward, its stellar track record is fueling huge gains in assets under management, up 51% last year. More assets under management will enable Apollo to pursue more deals, add leverage and increase management and performance fees. Those are all key revenue and profit drivers for private-equity and investment management companies.
Apollo's incredible string of high returns has also led to an eye-popping stream of income for shareholders. In the past year, the company has returned a total of $6.5 billion in dividends to investors. Analysts are projecting a full-year distribution of $2 in 2013, which would translate into a dividend yield of 7.8%. That's more than four times the 10-year Treasury note's yield of 1.9%.
Despite all the good news, an outsize dividend yield and past-year gains, Apollo still looks undervalued. The company's forward price-to-earnings (P/E) ratio of 8 is a sharp discount to its peer average of 13. That looks even better compared with the S&P 500's 14.
Risks to Consider: Apollo had a banner year last year, with a number of big-money projects and investments that exceeded expectations. Although earnings, valuation and yield look good, that strong performance could be difficult to replicate.
Action to Take: Apollo Global is the new player on the block in the private-equity space, after going public just two years ago. The company's impressive string of returns has enabled it to grow earnings and support an outsize dividend yield, lifting shares to new heights.
Michael Vodicka does not personally hold positions in any securities mentioned in this article.
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