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AMG Earnings: Market Gains and Favorable Currency Offset by Outflows as Share Repurchases Lift EPS

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Affiliated Managers Group Inc
(AMG)

There was little in narrow-moat Affiliated Managers Group’s AMG second-quarter results that would alter our long-term view of the firm. We expect to leave our $159 per share fair value estimate in place. We view the shares as being fairly valued right now.

AMG closed out the June quarter with $674 billion in managed assets, up 0.9% sequentially but still down 2.5% year over year. This was better than our forecast for $665 billion in assets under management, or AUM, as the firm benefited from slightly stronger markets and currency exchange than we were projecting, as well as less -negative flows (of $10 billion) relative to our forecast (for $14 billion). That said, the second-quarter flows were still worse than the $8.6 billion quarterly run rate for outflows experienced by AMG the past three years.

Given the ongoing weakness of the firm’s global equity performance, with just 45% and 38% of AUM outperforming benchmarks on a 3- and 5-year basis, respectively, at the end of June, we expect AMG to continue to face flow headwinds in that part of its business, noting that the segment’s $12.8 billion in outflows during the second quarter accounted for the majority of AMG’s outflows.

With average AUM down 8.1% year over year during the June quarter, the firm reported a 17.9% decline in revenue when compared with the prior year’s period, due primarily to mix shift and ongoing fee compression. AMG’s top-line decline of 17.6% during the first half was worse than our forecast for a high-single-digit decline during 2023, but the firm does have easier comparables in the back half.

As for profitability, AMG’s first-half adjusted EBITDA margins (by our calculations) of 32.6% were 630 basis points lower year over, below our projected range of 34%-38% for 2023, but things should improve some as we get through the rest of the year. Overall, AMG reported second-quarter economic earnings per share of $4.45, above the FactSet consensus of $4.24 but in line with our own estimate of $4.30.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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