According to the latest round of 13F filings, Citadel Investment Group, managed by Ken Griffin, increased the position in Affiliated Managers Group Inc. (AMG, Financial) by 9,522%; it was valued at $32.35 million at the end of March.
Other money managers that are bullish are Chuck Royce (Trades, Portfolio) and Israel Englander holding positions valued at $4.4 million and $37.9 million.
This $9.17 billion market cap business is an asset management company with equity investments in a group of boutique investment management companies.
The stock price has been moving in a trading range of $145 to $162 since the beginning of the year. Its price is at the same level it was in June 2013, and it is down about 28% from its high of $225 from April 2015. This should create an opportunity to invest in the stock at a relatively low price.
Affiliated Managers reported $3.21 EPS for the quarter, beating the consensus estimate by 3 cents. The company had revenue of $544.3 million for the quarter, missing estimates by $7.28 million. During the same quarter in the prior year, the company’s quarterly revenue was down 0.2% on a year-over-year basis.
Last year, the company ended with a record of $688.7 billion in managed assets, almost a 13% year-over-year increase. But it continues increasing its assets under management, up 17% since the first quarter of 2016, reaching a new record of $754 billion. The reasons behind this growth are its global distribution network as well as its prestige product portfolio with appealing return profiles in traditional assets as well as alternative investments. This should bring increases in revenue and profitability.
Free cash flow should expand; with that money, the company can return value to shareholders through share repurchases or in new investments in other boutique asset managers. Furthermore, the company´s brand and its relationships are significant intangible assets that, in the long run, are critical drivers in the industry.
Relative valuation
Regarding valuation, the stock sells at a trailing price-earnings (P/E) ratio of 18.44x, trading at a premium compared to an average of 12.9x for the industry. To use another metric, its price-book (P/B) ratio of 2.56x (which is close to a five-year low of 2.32x) indicates a premium versus the industry average of 1.0x while the price-sales (P/S) ratio of 4.26x (which is close to a five-year high of 4.43x) is below the industry average of 6.15x.
As we can see in the next chart, the stock price has an upward trend in the five-year period.
Final comment
This company will provide revenue growth with its diversified portfolios of fixed-income and alternative investments although negative market movements could affect the assets under management, hurting the EBITDA and the bottom line. While its exposure to emerging markets exposed it to geopolitical risks, the relative valuation shows us that the stock presents a buying opportunity for long-term portfolios.
Disclosure: Author holds no position in any stocks mentioned
