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