Affiliated Managers Group Looks Inexpensive
We’re leaving our fair value estimate for AMG unchanged after the firm reported earnings.
There was little in Affiliated Manager Group's (AMG) fourth-quarter results that would alter our long-term view of the firm. We are leaving our $185 per share fair value estimate in place. AMG closed out the December quarter with a record $688.7 billion in managed assets, reflective of a 2.4% sequential and 12.7% year-over-year increase in its total AUM. Excluding the contribution from the deals that closed during the year, which added $37.3 billion to AUM, the firm's managed assets increased 6.6% year over year. AMG's aggregate pro-forma AUM, which includes pending investments, was approximately $727 billion at the end of 2016. Net outflows of $4.1 billion were a bit of a setback from the $5.8 billion and $5.1 billion that flowed in during the third and first quarters of 2016, respectively. It looks like most of the shortfall was driven by seasonal client redemptions as well as realization activity in private equity and similar strategies, none of which was performance related.
While average AUM (on an adjusted basis) was up 5.7% year over year, the firm still reported a 6.7% decline in fourth-quarter revenue due primarily to a reduction in AMG's fee realization rate to 0.339% from 0.384% in the prior-year's period, which was driven almost entirely by mix shift. Full-year revenue was down 11.7%, at the upper end of our projection for a high-single to low-double-digit decline in revenue for all of 2016. As for profitability, AMG's full-year operating margins of 32.1% were at the lower end of our forecast for margins of 32%-33%. While the company had pulled back on share repurchases in the back half of 2016, management expects to be able to buy back $200 million worth of stock in the first half of 2017, which is included in its revised earnings guidance of $13.75-$15.75 per share (down from $14.00-$16.00 previously). AMG also initiated a quarterly cash dividend of $0.20 per share--equivalent to around a 0.5% yield--with the first payout expected in late February.
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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.