Shares of Affiliated Managers Group Inc. (AMG) gained nearly 8.5% after it announced first-quarter 2014 economic net income (ENI) of $2.48 per share, which easily beat the Zacks Consensus Estimate of $2.37. The reported figure also compared favorably with ENI of $2.27 in the year-ago quarter.
Our quantitative model had also conclusively projected that Affiliated Managers would beat the Zacks Consensus Estimate, as it had the right combination of two key components – a positive Earnings ESP and a Zacks Rank #2 (Buy).
Better-than-expected results benefited from top-line growth, partly offset by a persistent rise in operating expenses. Moreover, continued improvement in assets under management (AUM) and a strong balance sheet were the tailwinds.
Affiliated Managers’ ENI came in at $137.9 million, up 11% year over year.
Detailed Performance
Affiliated Managers’ total revenue increased 7% year over year to $593.1 million. However, it lagged the Zacks Consensus Estimate of $620.0 million.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $191.9 million, rising 10% from the year-ago quarter.
Total operating expenses climbed 14% year over year to $399.1 million. A rise in all operating expense components, except intangible amortization and impairments charges, was the primarily reason for the increase.
As of Mar 31, 2014, total AUM was $556.8 billion, up 28% year over year. This reflected net client cash flow of $7.0 billion.
Capital and Liquidity
As of Mar 31, 2014, Affiliated Managers had $747.1 million in cash and cash equivalents as compared with $469.6 million as of Dec 31, 2013. Moreover, the company had $400.0 million of senior bank debt at the quarter-end versus $525.0 million as of Dec 31, 2013.
Furthermore, shareholders’ equity came in at $2.4 billion, up from $2.1 billion as of Dec 31, 2013.
Investment Announcements
Along with the earnings release, Affiliated Managers announced a deal to acquire a majority stake in Veritas Asset Management LLP. With offices in London and Hong Kong, Veritas manages approximately £10 billion ($17 billion) for institutional and retail investors in the U.K. and worldwide.
In March, Affiliated Managers completed its investment in SouthernSun Asset Management, LLC. The deal was announced in Dec 2013.
Further, in March, Affiliated Managers announced two major deals to take forward its strategy of increasing market share and providing best-in class investment ideas to clients. Of the two transactions, one was Affiliated Managers’ agreement with Aviva Investors North America Holdings, Inc. to acquire full equity interest in River Road Asset Management, LLC. The second deal pertained to Affiliated Managers acquisition of minority stake in WA-based EIG Global Energy Partners, LLC.
Our Viewpoint
Affiliated Managers is expected to benefit from increased investments in the near term. Moreover, the growing need for risk management and alternative investment solutions within the financial service industry will likely be accretive to the company’s financials going forward.
However, a slow economic recovery, high debt levels in Affiliated Managers’ balance sheet and rising expenses are expected to keep the company’s financials under pressure.
Performance of Other Asset Managers
Among other investment management firms, The Blackstone Group L.P. (BX), BlackRock, Inc. (BLK) and Ameriprise Financial Inc. (AMP) outpaced the Zacks Consensus Estimate in their latest earnings releases. The results of these companies were driven by improvement in top line, partially offset by higher expenses. Further, all three companies recorded impressive AUM growth.
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