EUR 850.00 For Business Accounts Only

Morningstar | Market Losses and Outflows Mar AGF Management's 2Q Results; No Change to CAD 5.80 per Share FVE

There was little in no-moat AGF Management's fiscal second-quarter results that would alter our long-term view of the firm. We are leaving our CAD 5.80 per share fair value estimate in place. Total AUM decreased 1.3% sequentially and 0.3% on a year-over-year basis, leaving AGF with CAD 38.4 billion in managed assets at the end of May. Mutual fund net outflows of CAD 498 million were another step back from the positive flow trajectory AGF Management had been on during most of fiscal 2018. The company also saw outflows from its institutional channel operations, with estimated firmwide net outflows of CAD 895 million marking the company's worst quarter of outflows since the third quarter of fiscal 2015. 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. Despite finally surpassing management's goal of having more than half of retail AUM outperforming peers on a one-year basis, and 60% outperforming on a three-year basis at the end of fiscal 2017, the firm has taken a big step back during 2018-19, with just 49% and 21% of funds, respectively, above at the end of the second quarter (compared with 14% and 27%, respectively, at the end of May 2018, and 50% and 53%, respectively, at the end of May 2017). As we've noted previously, it will take sustained levels of peer-beating performance before AGF Management can start to generate positive flows on a more consistent basis. While average AUM was up 5.5% year over year, revenue declined 3.9% due to fee compression and product mix shift during the quarter. First-half top-line growth of negative 4.6% was in line with our forecast calling for a mid-single-digit decline during fiscal 2019. The revenue shortfall impacted first-half profitability, with the company's EBITDA from continuing operations coming in at less than 20% of sales--basically in line with our expectations for fiscal 2019.