In this article, let's take a look at Affiliated Managers Group Inc. (AMG, Financial), a $11.99 billion market cap company, which is an asset management company with equity investments in a group of boutique investment management firms, or Affiliates.
Ups and Downs
Ken Griffin decreased his position in the stock through Citadel Investment Group by 25% to $129.2 million with 601,845 shares in the company's latest filing. The opposite action was taken by Jim Simons (Trades, Portfolio), who increased the position by 91% to 170,900 shares, valued at $36.7 million. Paul Tudor Jones and Jeremy Grantham also remain bullish on the company as evidenced by their increased position in the company's shares by 3,414 and 15,300 shares, respectively.
The investor with the more bullish position was John Burbank, because he initiated a stake with 145,313 shares. On the other hand, Ken Fisher and Pioneer Investments both have reduced their positions in the first quarter.
Future Appreciation
The stock has returned 1.2% in the first quarter, 3.3% on a year-to-date basis, and 8.8% over the past 52 weeks.
On June 8, Goldman Sachs (GS, Financial) initiated the rating coverage with a target price of $258 and a few days ago, Jefferies maintained its Buy recommendation with a price target of $254.
This means that there exists about a 16% of upside potential from the actual closing price. Moreover, according to Yahoo! (YHOO, Financial) Finance, the estimated one-year target share price is $265.11, reflecting a future price appreciation of 20.9%.
On April 28, the company announced that it expanded its assets under management due to good performance of its boutique affiliates. We expect that this trend continues, and as a matter of fact, operations will boost until it doubles the growth rate.
Thanks to its global distribution network and its well-known product portfolio, the company reached performance success amid a low-performing market.
I expect the firm could achieve solid increases in revenue and profitability. Obviously the company is not free-risk; principally, the exposure it has to markets outside the U.S. increases the economic or political risks.
Q1 Highlights
The company increased net profits by 66.2%; the number reported was $128 million compared to $77 million for the first quarter of 2014. Further, earnings per share have increased by 17% to $2.91 and an extremely important factor in this industry, which are the assets under management increased to $638 billion.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| AMG | Affiliated Managers | 19.75 |
| KKR | KKR & Co. | 10.77 |
| SEIC | SEI Investments Company | 26.56 |
| LM | Legg Mason Inc | 5.15 |
| TROW | T. Rowe Price Group Inc | 23.81 |
| IVZ | Invesco Ltd | 12.72 |
| Â | Industry Median | 6.0 |
The company has a current ROE of 19.75% which is higher than the industry median and the ones exhibit by Legg Mason (LM, Financial), KKR & Co. (KKR, Financial) and Invesco (IVZ, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, SEI Investments (SEIC, Financial) and T. Rowe Price Group Inc. (TROW, Financial) could be other alternatives. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
| Quarter Ended | Dec-15 | Mar-15 | Jun-15 | Sep-15 | Dec-15 | Mar-15 | Jun-15 | Sep-15 | Dec-15 | Mar-15 |
| ROE (%) | 14.96 | 11.84 | 12.08 | 14.37 | 30.38 | 13.53 | 16.09 | 16.23 | 26.13 | 19.75 |
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 25.77x, trading at a premium compared to a median of 13.8x for the industry. To use another metric, its price-to-book ratio of 4.69x indicates a premium versus the industry average of 0.96x, while the price-to-sales ratio of 5.15x is below the industry average of 7.59x. The first two metrics indicate the stock is relatively overvalued.
Final Comment
The asset manager´s prospects seems to be promising due to its business model which continues providing value and growth investment styles, as well as fixed-income and alternative investments. Moreover, the operating margin is expanding and the firm continues to focus on returning value to shareholders via share repurchases.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
