EFTA02386542.pdf

From: Richard Kahn Sent: Monday, February 6, 2017 3:01 PM To: jeffrey E. Subject: Fwd: APO US: Apollo Global Management: Rating Change - Upgrading to Buy on positive results and a more favorable FRE, return, & dist outlook - BUY - United States Richard =ahn HBRK Associates Inc. 575 Lexington =venue 4th Floor New York. NY 10022 Begin forwarded message: From: =/b>"Ens, Amanda" Subject: =/b>APO US: Apollo =lobal Management: Rating Change - Upgrading to Buy on positive results =nd a more favorable FRE, return, & dist outlook - BUY - United =tates Date: =/b>February 6, 2017 at 9:21:23 AM =ST To: qb>"Rich Kahn" Reply-To: =/b>"Ens, Amanda" Global Research 1 EFTA_R1_01406697 EFTA02386542 Apollo Global Management Upgrading to Buy on positive results and = more favorable FRE, return, & dist outlook Rating Change: BUY PO: 27.00 USD Price: 22.13 USD Equity 1 06 February =017 Key takeaways • =/span>We are upgrading APO to Buy from =eutral on improving FRE, returns, & dist. We raise our PO to $27 =rom $23 (20%+ upside). • =/span>We take our ENI ests up roughly =0% (7% above consensus) & '18 distribution +4% (11% above =onsensus). 7% yield on '17E. =/span>The upgrade comes after APO =eported a better than expected 4Q ($0.98 vs. cons/us $0.80/$0.96), with = positive outlook. FULL REPORT 2 EFTA_R1_01406698 EFTA02386543 Upgrading APO to Buy =rom Neutral - PO to $27 We are upgrading =PO to Buy from Neutral and raising our PO to $27 from $23 (23% upside =otential plus 7% yield). The rating change is driven by our expectation =or improving fee related earnings (FRE), fund returns, and a rising =istribution. We expect FRE to improve as Fund IX is raised and turns on =-$0.25 benefit initially, -20% to FRE and -10% to ENI, economic net =ncome); returns to improve with economic growth; and distributions to =ise with FRE, a more seasoned Fund VIII, and possible Athene liquidity =vents. We are raising our 2017 and 2018 ENI estimates around 10% due to =ur outlook (- 7% above consensus) and our 2018 distribution +4% (7% =ield on '17) and 11% above consensus. Turning point for =undamentals Apollo has done a =ood job growing its more stable FRE, notably due to significant growth =n its Credit segment, and this should benefit further with Fund IX in =E (we expect it in 2H17 and given strong returns we expect at least a =imilar raise of -$18B). While fund returns picked up meaningfully in =1116 vs. 1H16, we expect returns to remain favorable and likely improve =urther with accelerating economic growth and pro-growth policies. =mportantly, although APO is currently around trough levels for its =istribution (dividend), which had kept us less positive on the stock in =he past, we see this shifting with rising FRE, potential Athene cash =vents, and more capital in the ground (deployed $16B in '16) that is =ikely to generate performance fees and be realized over time given =urther seasoning, strong performance, and a healthy capital markets =ackdrop. APO reported 4Q =NI/share of $0.98, beating expectations APO reported ENI/share of $0.98, =eating the Street/our estimates of $0.80/$0.96, due to =etter-than-expected revenue, driven by performance fees and transaction =ees. We would note that the strong quarter was driven in part by an =nticipated positive mark on Athene, which IPO'd in 4Q. However, the core business also =erformed well, with strong performance (+2.1% to +5.9%), healthy =undraising, active deployment and exits, and rising accrued performance =ees. The distribution was relatively strong, at $0.45. =/span> Attractive risk/reward - =27 PO and 7% yield We raise our PO to $27, given stronger =RE & returns having a positive impact on our sum-of-the-parts =aluation. We like the risk/reward in APO, and while macro and policy =hanges (tax reform) are still uncertain, we see the positives =utweighing the risks. Michael Carrier, CFA Research Analyst MLPF&S </=able> 3 EFTA_R1_01406699 EFTA02386544 This report is intended for amanda.ens@baml.com =o:p class=""> Click here to access the =esearch Library Read the research report, available through the link above, =or complete information including important disclosures and analyst =ertification(s). The research report and the link to such report are for the =se of Bank of America Merrill Lynch customers only and all copying, =edistribution, retransmission, publication, and any other dissemination =r use of the contents thereof are prohibited. There may be more recent =nformation available. Please visit one of the electronic venues that =arry BofA Merrill Lynch Global Research =eports or contact your Bank of America Merrill Lynch representative for =urther information. "Bank of America Merrill Lynch" is the marketing =ame for the global banking and global markets businesses of Bank of =merica Corporation. Click here to stop or =odify the delivery of Research via Emails. Publication: 60353226-11708055.pdf Recipient: amanda.ens@baml.com <mailto:amanda.ens@baml.com> http://rsch.baml.com/r?q=CnZyHSgEeWzADcTaRwiMxQ&e=richa=dkahn12%40gmail.com&h=dNIqnw This message, and any attachments, is for the intended =ecipient(s) only, may contain information that is privileged, =onfidential and/or proprietary and subject to important terms and =onditions available at http://www.bankofamerica.com/emaildisclaimer. If you are =ot the intended recipient, please delete this message. 4 EFTA_R1_01406700 EFTA02386545 2222072 5 EFTA_R1_01406701 EFTA02386546