Affiliated Managers' (AMG) Strong Liquidity Aids Amid Cost Woes
Affiliated Managers Group, Inc. AMG is well poised with successful partnerships and a strong liquidity position. However, elevated expenses and net outflows are expected to hurt the company.
Affiliated Managers, with its decent balance sheet and liquidity position, has considerable capability to invest in other companies and generate meaningful growth. In 2022, the company made a minority investment in Peppertree Capital Management and increased its stake in Systematica Investments. Further, last year, it sold its minority interest in Baring Private Equity Asia to EQT AB, in order to enhance its financial flexibility to allocate capital across the areas with the highest growth and return. In the past, the company has also undertaken similar steps. These investment activities are expected to generate long-term growth in the near future.
Affiliated Managers has a decent balance sheet position. As of Mar 31, 2023, the company had total debt worth $2.54 billion and a cash and cash equivalent balance of $832.8 million. It has a $1.25-billion senior unsecured multicurrency revolving credit facility (maturing in October 2027) and a $350-million senior unsecured term loan facility (maturing in October 2026).
Also, it doesn’t have any debt maturities till 2024. Thus, the company's earnings strength and decent liquidity seem sufficient to be able to meet debt obligations in the near term, even if the economic situation worsens.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 6.6% compared with the industry’s rise of 4.8%.
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However, Affiliated Managers has been witnessing a persistent rise in expenses. While consolidated expenses declined in 2019, 2020 and the first three months of 2023, the same witnessed a compound annual growth rate (CAGR) of almost 1% over the five-year period ended 2022. Overall costs are expected to remain elevated due to advertising campaigns, hiring, inflation and technology upgrades. Our estimates for total consolidated expenses suggest a CAGR of 3.4% by 2025.
Affiliated Managers’ affiliates have been witnessing overall net outflows over the past few years. Net client cash outflows were $33 billion in 2022, $18.5 billion in 2021, $61.8 billion in 2020 and $53.5 billion in 2019. Though the company’s differentiated product categories are likely to support cash flows across channels, a tough operating backdrop is expected to keep investors on the sidelines in the near term. We project net client cash outflows to be $19.7 billion this year, $16.9 billion in 2024 and $17.2 billion in 2025.
Stocks Worth a Look
A couple of better-ranked stocks from the asset management space are Artisan Partners Asset Management APAM and Capital Southwest CSWC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Artisan Partners’ current-year earnings has been revised 3.4% upward over the past 60 days. Its shares have gained 17.4% in the past three months.
Capital Southwest’s earnings estimates for 2023 have been revised 1.6% upward over the past 60 days. In the past six months, CSWC’s shares have gained 9.2%.
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Affiliated Managers Group, Inc. (AMG) : Free Stock Analysis Report
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