EUR 850.00 For Business Accounts Only

Morningstar | AGF.B Updated Forecasts and Estimates from 24 May 2019

We've lowered our fair value estimate for no-moat-rated AGF Management to CAD 5.80 per share from CAD 6.50 to reflect greater fee and margin compression than we'd expected to see this early in our five-year forecast. The company closed out April with CAD 39.7 billion in managed assets, up 7.0% year over year. Estimated mutual fund inflows of CAD 16 million over the past four quarters is indicative of 0.1% organic growth, slightly better than our forecast of flat to negative low-single-digit organic growth this year. Flows for its institutional and high-net-worth channels have been stronger but remain well off the solid organic growth rates we saw during fiscal 2017-18.

We continue to believe that improvements in AGF Management's investment performance will be the real driver of future flows for the firm, especially on the mutual fund side of the business. The company aims to deliver consistent and repeatable investment performance, targeting 50% and 60% of its assets under management, respectively, to be above median performance levels over the prior one- and three-year time frames. At the end of the firm's fiscal first quarter, just 20% and 16% of AUM was above median performance levels on a one- and three-year basis, respectively, a huge step down from the prior year's levels.

Given some of the headwinds that the purer-play Canadian asset managers are expected to face--including increased competition from the big six banks and ongoing fee pressures--we expect AUM and revenue growth to be muted, with low- to mid-single-digit AUM growth giving way to low-single-digit top-line growth during fiscal 2019-23. We also envision adjusted EBITDA margins remaining range-bound between 21% and 24% over our forecast as the competitive environment in Canada pressures not only fees but also profitability for the non-bank-affiliated asset managers.