Yahoo Finance AGF Management Ltd (AGFMF) Q1 2024 Earnings Call Transcript Highlights: Strong Growth Amid ...
AUM and Fee Earning Assets: $45 billion, up 7% year-over-year.
Adjusted Diluted EPS: $0.51, up 89% year-over-year.
Short- and Long-term Investments: $320 million on balance sheet.
Net Debt: $17 million.
Credit Facility Availability: $110 million.
Dividend: $0.115 per share for Q1 2024, 5% increase year-over-year.
Mutual Fund AUM: Increased 9% year-over-year.
ETF and SMA AUM: Increased 20% year-over-year.
Segregated Accounts and Subadvisory AUM: Increased 2% year-over-year.
Private Wealth AUM: $7.8 billion, up 7% year-over-year.
Capital Partners AUM and Fee Earning Assets: $2.2 billion at end of quarter.
Adjusted EBITDA: $49.5 million, significantly higher than previous periods.
Net Management Fees: $75 million, up 4% from Q4 and 2.6% year-over-year.
Adjusted SG&A: $53.5 million, up 5.5% from Q4 and 1.3% year-over-year.
Capital Partners Revenue: $24.4 million, mainly from fair value gain on long-term investments.
Free Cash Flow: Trailing 12-month free cash flow was $78 million.
Dividend Payout Ratio: 36% of free cash flow.
Market Valuation: Share price approximately $8.40 with adjusted EPS of $1.35, implying a P/E of about 6x.
Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
AUM and fee-earning assets reached $45 billion, up 7% from a year ago.
Adjusted diluted EPS was $0.51 in the quarter, up 89% year-over-year.
Declared a $0.115 per share dividend for Q1 2024, representing a 5% dividend increase.
Mutual fund AUM increased 9% year-over-year, outpacing the industry.
ETF and SMA AUM increased 20% year-over-year, showing strong growth and momentum.
Negative Points
Received a redemption notice from an institutional client for $800 million due to a shift towards passive management.
The Canadian mutual fund industry experienced net redemptions of approximately $4 billion in the quarter.
AGF reported mutual fund net redemptions of $125 million in the quarter.
1-year mutual fund performance was in the 68th percentile, impacted by market narrowing.
Adjusted SG&A for the quarter was $53.5 million, 5.5% higher than Q4 and 1.3% higher than the previous year.
Q & A Highlights
Q: Can you give a bit more color and details on the $24.4 million revenue from the AGF Capital Partners, maybe the chunkier pieces? A: Ashley Lawrence - AGF Management Limited - Head of AGF Capital Partners: A good chunk of the $24 million is the fair value increase, largely related to our infrastructure investments. The fair value increase is lumpy in nature and is largely due to business plan execution and J curve impacts in the infrastructure space. The investments are now on the other side of the J curve, and we're starting to see value creation come through in the fair values. The fair value increases are not surprising due to the inflationary environment and the vintage of our early fund investments in traditional infrastructure.
Q: How should we think about the Kensington contribution and performance fee expectation now that you've closed that transaction? A: Ken Tsang - AGF Management Limited - CFO: We typically do not guide to revenues overall for each of the respective businesses, especially since performance fees can be quite lumpy quarter-to-quarter. The SG&A guidance we provided includes the consolidation of Kensington plus some additional investments for the broader Capital Partners business. The expectation is that even factoring in the SG&A increase, we would still be accretive from an EBITDA basis on a go-forward basis.
Q: What's the update on the RSP season and your positioning to capture potential flows back to investment funds when rates eventually fall? A: Judith Gail Goldring - AGF Management Limited - President, Head of Global Distribution & Director: Quarter-to-date, we're seeing almost flat redemptions, which is an improving trend. There's a shift of money flowing into fixed income mandates, and we feel comfortable with our lineup of fixed income mandates to capture our share of the market. Our private wealth AUM increased by 7% compared to the prior year to $7.8 billion.
Q: Can you comment on the fair value adjustment in the quarter? A: Ashley Lawrence - AGF Management Limited - Head of AGF Capital Partners: There was no single event that created the $20-odd million increase. It's a result of the sector and the vintage that we've invested in, with infrastructure investments seeing the most benefit in the current inflationary environment. Private credit valuations don't move around that much, and fair values are generally smaller moves.
Q: What was the $16 million capital commitment related to in the quarter? A: Ken Tsang - AGF Management Limited - CFO: The commitment relates to our existing long-term investments portfolio. We still have commitments that are required in our existing long-term investments portfolio, and this relates to really those types of investments.
Q: What were the net flows in the mutual fund business if we also included the ETF and SMA offerings? A: Judith Gail Goldring - AGF Management Limited - President, Head of Global Distribution & Director: We don't break it down and don't typically give that breakdown out. But if we look at the data, our redemptions would have improved by about half. Our SMA platform is seeing great growth, up 87% year-over-year in Canada.
Q: What's the focus with Kensington now that the deal is closed? A: Ashley Lawrence - AGF Management Limited - Head of AGF Capital Partners: Our early initiatives with Kensington are around broad exposure, leveraging our marketing and production capabilities, geographic expansions around distribution and product set, and helping them become more efficient in some of their support functions.
Q: Should we expect more M&A activity from you over the near term? A: Ashley Lawrence - AGF Management Limited - Head of AGF Capital Partners: Our deal pipeline is still open and active. We will focus on ensuring our existing partnerships start off on the right foot, but our pipeline is healthy. We are going to be a little more focused now that we've got 2 of our target sectors and areas and geographies in place with Kensington and New Holland Capital.
Q: With respect to Kensington now that it's closed, I think you're going to be accounting for this on a 100% basis, both in terms of revenue and SG&A and then back out some non-control. Do I have that correct? A: Ken Tsang - AGF Management Limited - CFO: Yes, that's correct, Tom.
Q: How do you see the mix of your earnings between the managers, the long-term investments, and the core evolving going forward? A: Kevin Andrew McCreadie - AGF Management Limited - CEO, CIO & Director: The mix will shift over time, logical that this part of the pie will grow faster. It's less relevant as a number versus how we do it and how quickly we can get there.
Q: Now that you've hit your $5 billion alternative target, what is the next target we should think about in terms of either AUM target or EBITDA or mix target for your alternative business? A: Kevin Andrew McCreadie - AGF Management Limited - CEO, CIO & Director: We gave the $5 billion target a bunch of years ago to give guidance about how we were thinking to get this initiative off the ground. Now that we're there, it's less about an AUM target and more about how we grow the business and shift the strategy.
This article first appeared on GuruFocus.
