AGF Management Earnings: Investment Gains and Income Distributions Offset Mediocre Operating Results

There was little in no-moat AGF Management’s AGF.B fiscal second-quarter results that would alter our long-term view of the firm. We are leaving our CAD 8.50 fair value estimate in place. We view the shares as slightly undervalued despite their roughly 5% price increase during intraday trading June 21.

AGF closed the May quarter with CAD 41.2 billion in assets under management, down 1.7% sequentially but up 2.3% year over year. This was in line with our expectations, given the low- to mid-single-digit declines in the S&P/TSX Composite Index during both March and May.

By our estimates, AGF generated positive flows overall during the May quarter, with a reported CAD 77 million of inflows for its retail fund operations augmented by positive flows for its high-net-worth channel, while institutional outflows detracted some from the positive flow picture. We still expect the firm to generate positive flows overall during fiscal 2023.

While average AUM (by our calculations) was up 1.9% year over year during the second quarter, AGF reported a 2.2% decline in management, advisory and administration fees, due primarily to a 3.0% decline in the firm’s realization rate. Fee income was down 3.1% year over year during the first half.

Total revenue—which includes deferred sales charges, the firm’s share of the profits of associates and joint ventures, and fair value adjustments and other income—was up 10.5% year over year, primarily because of fair value adjustments to and income distributions from investments in AGF mutual funds and private capital long-term investments. Revenue growth in the first half of the year was just 0.5%.

Adjusted pretax operating margin of 25.7% for the first half was ahead of our projections for the full year. We continue to expect margins to be range-bound at 15%-25% over our five-year forecast period as the company scales up its asset-management business.