EUR 850.00 For Business Accounts Only

Morningstar | Fee and Margin Compression Affect AGF Management's Fiscal 2018 Results

There was little in no-moat-rated AGF Management's fiscal fourth-quarter results that would alter our long-term view of the firm, but we still expect to lower our fair value estimate slightly to reflect greater fee and margin compression than we have been forecasting. Total assets under management increased 1.1% from the year-ago period, leaving AGF with CAD 37.7 billion in managed assets at the end of November 2018. Mutual fund net inflows of CAD 111 million were a return to positive flows for the firm, with the company also (by our estimates) picking up another CAD 375 million in net inflows from its institutional, subadvisory, ETF, alternatives, and private client segments during the fourth quarter of fiscal 2018.

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. With just 43% and 23% of the company's retail AUM outperforming peers on a one- and three-year basis, respectively, at the end of December, we're not sure how sustainable the firm's positive flows will be. As we've noted in the past, it will take sustained levels of peer-beating performance for AGF Management to start generating positive flows on a consistent basis.

While average AUM was up 1.1% year over year, fourth-quarter revenue decreased 10.2% year over year due to fee compression and product mix shift as well as lower levels of other revenue. Full-year top-line growth of negative 1.2% was below our forecast for flattish to slightly positive revenue growth for fiscal-year 2018 (with much of the difference driven by the drop in base management fees). The revenue decline impacted profitability as well, with the company's full-year EBITDA from continuing operations coming in at less than 24% of sales (down nearly 200 basis points year over year).