Decarbonization And Defense Shifts Will Expand Alternative Investment Appeal

Key Takeaways

• Leadership in decarbonization, private credit, and ESG investing positions Tikehau to benefit from global structural shifts and increased investor demand for alternative assets.
  
• Innovations targeting private and international investors, along with a scalable platform and high-value mandates, support expanded revenues, better margins, and improved earnings quality.
  
• Heavy focus on private markets and retail fundraising increases exposure to sentiment, liquidity, margin, and geopolitical risks, threatening fee growth, profitability, and diversification.

Catalysts

An alternative asset management group with €46.1 billion of assets under management (as of 30 June 2024).

• Tikehau Capital's strong positioning in areas such as decarbonization, defense, and private credit aligns closely with persistent structural shifts (energy transition, heightened defense spending, and digitalization), which are driving investor demand and fueling rapid AUM growth-suggesting a positive outlook for management fee revenue.
  
• The acceleration in product innovation and retailization-particularly successful launches of semi-liquid private debt and unit-linked strategies aimed at private investors-positions Tikehau to capture new segments of the global shift toward alternative assets, expanding the revenue base and improving operating leverage.
  
• The globalization of Tikehau's investor base, with 80% of net inflows coming from international clients and expanding penetration in fast-growing regions like Asia, not only diversifies risk but sets the foundation for ongoing AUM and fee-related earnings growth.
  
• Tikehau's established reputation and early leadership in ESG-integrated and impact investing is enabling it to win high-value mandates and charge performance fees tied to positive outcomes, enhancing both earnings visibility and the quality of fee income.
  
• The growing share of long-term capital in fee-paying AUM and an increasing pipeline of funds approaching carry crystallization suggest rising future performance fee revenue and profitability, with the company's scalable platform likely to drive further margin expansion as fixed costs are leveraged across higher AUM.

Tikehau Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tikehau Capital's revenue will grow by 20.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.2% today to 43.5% in 3 years time.
• Analysts expect earnings to reach €462.8 million (and earnings per share of €2.71) by about August 2028, up from €184.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 17.9x today. This future PE is lower than the current PE for the FR Capital Markets industry at 19.9x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.14%, as per the Simply Wall St company report.

Tikehau Capital Future Earnings Per Share Growth

Risks

• Tikehau Capital's increasing reliance on fundraising from retail/private investors may expose it to greater sensitivity to shifts in sentiment, regulatory changes around private market access, or competition from lower-cost, passive investment products-potentially limiting future net inflows and management fee growth.
  
• The company's significant emphasis on illiquid private markets (private debt, private equity, real assets) brings pronounced liquidity and valuation risks, especially in the event of macroeconomic shocks or downturns, which could impair asset valuations, slow deployments, and lead to volatile revenues and earnings.
  
• Ongoing margin compression is evidenced by the decrease in FRE (fee-related earnings) margin to 30% in H1 2025 versus previous periods, highlighting rising operating costs and fee rate pressures-suggesting challenges in achieving targeted profitability and putting net margins at risk if cost discipline or fee growth do not keep pace.
  
• Heightened geopolitical instability and macroeconomic complexity, while providing investment opportunity, could also hinder cross-border capital flows and hamper the validity of thematic strategies relying on international growth, reducing both AUM growth and diversification benefits over the long-term.
  
• The continued challenging environment in real estate-with only a slight recovery in inflows and persistent sector weakness-limits Tikehau's revenue contribution from this asset class and exposes the company to further downside if the anticipated market rebound fails to materialize or high-yield acquisitions do not deliver expected returns.

Valuation

• The analysts have a consensus price target of €23.83 for Tikehau Capital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €28.0, and the most bearish reporting a price target of just €19.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.1 billion, earnings will come to €462.8 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of €19.18, the analyst price target of €23.83 is 19.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.