Oz Management is Revamping Its Structure for the Future, Analysts Target Price

Och-Ziff Capital Management Group LLC (NYSE: OZM) is one of the largest institutional alternative asset managers in the world, with offices in New York, London, Hong Kong, Mumbai, Beijing, and Shanghai. Oz provides asset management services to investors globally through its multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles. As of December 1, 2018, Oz had approximately $32.3 billion in assets under management.

On Nov 2nd, 2018, the company announced its financial results for the quarter ended September 30, 2018 and provided an update on its business. The Company’ performance for the year in credit and real estate has been strong, and its positioning has effectively protected capital in multi-strategy despite recent market turbulence. Oz has the right products and a history of generating returns for its clients and believe that this market correction and accompanying volatility create a variety of compelling investment opportunities going forward.

Third Quarter Highlights:

  • Distributable Earnings loss of $5.2 million, or $0.01 per Adjusted Class A Share for the third quarter of 2018, and Distributable Earnings of $47.2 million, or $0.09 per Adjusted Class A Share, for the first nine months of 2018.
  • Distributable Earnings excluding a legal provision accrual were $10.9 million, or $0.02 per Adjusted Class A Share, for the third quarter of 2018, and $74.4 million, or $0.14 per Adjusted Class A Share, for the first nine months of 2018.
  •  A cash dividend of $0.02 per Class A Share was declared for the third quarter of 2018, payable on November 20, 2018, to holders of record on November 13, 2018. • Oz Master Fund, the Company’s largest multi-strategy fund, was -0.2% gross and -0.4% net for the third quarter of 2018, +6.0% gross and +4.0% net for the first nine months of 2018, and +7.3% gross and +4.7% net over the trailing twelve months through September 30, 2018.
  • Oz Credit Opportunities Master Fund was +3.3% gross and +2.4% net for the third quarter of 2018, +12.4% gross and +8.8% net for the first nine months of 2018, and +17.6% gross and +11.8% net over the trailing twelve months through September 30, 2018.
  • As of November 1, 2018, estimated assets under management were $32.3 billion, with Oz Master Fund generating an estimated -2.8% net return in October 2018


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Promising near to medium term Outlook:

As Oz moves into year-end, the company continued to be disciplined and focused on execution. In fact, OZ has seen particularly good performance for the year in credit and real estate and have protected capital in multi-strategy. The company has the right products and a history of generating returns for its clients and the management believe that this market correction and accompanying volatility often creates a variety of compelling investment opportunities.

So far financial performance is concerned, while there were some expense variations quarter-to-quarter, the company reconfirmed its previous guidance for all of its three major expense categories. Oz guidance for the full year 2018 tax receivable agreement and other payables remains unchanged at 10% to15%.

Robust balance sheet and financial flexibility:

Regarding balance sheet and liquidity. Oz continues to have a healthy cash balance, and its outstanding corporate debt was $200 million as of September 30, 2018. As the company begins to get clarity on fourth quarter distributable earnings, its first priority is to continue to strengthen the balance sheet. After that the management is expected to evaluate dividends, share repurchases and investments in the business, based on what it believes is in the best long-term interest of shareholders.

Oz investment Highlights

Analyst ratings and target price:

Per www.marketbeat.com, Their average twelve-month price target is $3.00, suggesting that the stock has a possible upside of 143.90%. 

Below are the excerpts of recent analyst rating/Price targets on the company:

Source: www.marketbeat.com

About the Company: Oz Management is a diverse and fully integrated alternative asset manager. With experienced teams across North America, Europe, and Asia, Oz has the breadth and depth to source ideas, evaluate opportunities and allocate capital across strategies and geographies.

Other recent announcements:

Strategic plan for equity reallocation: On December 6, 2018, the company announced a comprehensive strategic plan that includes a significant equity reallocation by Chairman Daniel S. Och and former executive managing directors to current executive managing directors, facilitates deleveraging of the Company’s balance sheet, and converts the Company’s tax classification from a partnership to a corporation.

Key highlights:

  • Daniel Och and Former Executive Managing Directors Agree to Reallocate Significant Equity Creates Long-Term Alignment for Current EMDs with Shareholders and Clients
  • Near-Term Debt Paydown and Restructuring to Facilitate Deleveraging
  • Elects to Change Tax Classification from Partnership to C-Corporation
  • Announces 1-For-10 Reverse Stock Split for Class A Shares

 The Company has subsequently determined to change its tax classification from a partnership to a corporation effective April 1, 2019. The Company expects to make a final partnership distribution for the fourth quarter of 2018 on March 29, 2019 to shareholders of record at the close of business on March 22, 2019.  Shareholders will receive a final Form K-1 for the period from January 1, 2019, through the date immediately preceding the Corporate Classification Date. There can be no assurance that shareholders will receive sufficient distributions to satisfy payment of tax liabilities in respect of their membership interests in the Company.  Distributions received after the Company’s change in tax classification will be treated as dividends and reported on Form 1099-DIV.

Transaction Summary Snapshot:

Management commentary:

Robert Shafir, Oz Chief Executive Officer, said, “We believe the suite of strategic actions we are announcing today solidifies Oz’s future, providing long-term stability and setting the firm on a path for continued success. By materially increasing equity ownership by the current partners and taking steps to enhance our capital structure, we expect to be better positioned to serve our clients.”

Financial Results:

Revenue and profitability:

  • Revenues for the quarter were $89 million, down 29% as compared to the third quarter 2017 and down 15% versus the prior quarter, driven primarily by lower incentive income. 
  • Management fees were $66 million for the third quarter of 2018, 8% lower than a year ago and 1% higher than the prior quarter. The year-over-year management fee decrease was driven primarily by lower multi-strat assets, partially offset by increased assets in institutional credit strategies. Incentive income was $19 million for the third quarter of 2018, 62% lower than a year ago and 44% lower than the prior quarter.
  • The Company reported third quarter 2018 GAAP net loss of $15 million or $0.08 per basic and diluted Class A share. 

Key Stock Influences:

  • The company’ portfolio and performance are exposed to the risk related to credit risk and reinvestment risk.
  • Also, the company’ performance is vulnerable to market risk, i.e. the inherent volatility, cyclicality and unpredictability of the underlying industry/economy.
  • . That’s because the risks Oz face are market and business risks, which are volatile and difficult to measure.
  • External and macro factors such as regulations, state of the economy, government borrowing programme, capital needs of the corporate sector, and liquidity in the capital and money markets also have a direct bearing on the business potential of Oz.

Stock Chart:

  • On Friday, January 4, 2019, OZM was at $10.73 on volume of 84K shares exchanging hands. Market capitalization is $557.528 million. The current RSI is 48.75
  • In the past 52 weeks, shares of OZM have traded as low as $8.60 and as high as $28.90
  • At $10.73, shares of OZM are trading below its 50-day moving average (MA) at $11.12 and below its 200-day MA at $17.28


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