Positive Performance Recognition Will Attract New Investments

Key Takeaways

• Transitioning away from single mandate clients and PineStone-related outflows is expected to achieve sustainable inflows and increase revenue.
  
• Increased client interest in private market offerings and regionalized distribution model could enhance revenue and asset management growth.
  
• Challenging economic conditions, asset outflows, and leverage risks could hinder Fiera Capital's revenue growth, financial flexibility, and investment strategies.

Catalysts

An employee owned investment manager.

• Reduced concentration of single mandate clients and the transition away from PineStone-related outflows are expected to return the company to sustainable net inflows, potentially increasing Fiera Capital's revenue.
  
• Increased interest from clients in private market offerings, such as agriculture and corporate credit strategies, could generate higher revenue through enhanced private market management fees.
  
• Positive performance recognition for Fiera Capital's funds, such as Global Manager Research Awards, can attract new investments and boost assets under management, thus increasing base management fees.
  
• The company's regionalized distribution model aims to improve client relationships and drive sales growth, which could lead to enhanced revenue from diversified geographic sources.
  
• Expected stabilization and potential recovery in real estate and strategic focus on private debt and real assets may boost revenue streams with low volatility and higher margins.

Fiera Capital Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fiera Capital's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 8.6% in 3 years time.
• Analysts expect earnings to reach CA$66.9 million (and earnings per share of CA$0.82) by about March 2028, up from CA$25.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, down from 27.9x today. This future PE is greater than the current PE for the CA Capital Markets industry at 12.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.12%, as per the Simply Wall St company report.

Fiera Capital Future Earnings Per Share Growth

Risks

• The outflows from PineStone and the expected additional $1 billion in asset transfers present risks to maintaining or increasing AUM, potentially impacting revenue growth.
  
• Despite base management fees increasing, the decline in performance fees, particularly in the public markets, highlights potential challenges in earning consistent management income, affecting overall revenue and earnings.
  
• The global economic and political uncertainty, including U.S. tariff threats, could increase market volatility, impacting Fiera Capital’s investment strategies and potentially affecting net margins.
  
• The leverage ratio's increase to 3.3x and proximity to the bank covenant of 3.5x poses a risk if financial results do not improve, potentially constraining financial flexibility and impacting net earnings through higher interest expenses.
  
• The dependency on the regional distribution model to drive future growth comes with execution risks, particularly if the expected client inflow and mandate conversion do not materialize as anticipated, affecting future revenue and net margins.

Valuation

• The analysts have a consensus price target of CA$7.458 for Fiera Capital based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$8.75, and the most bearish reporting a price target of just CA$6.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$777.8 million, earnings will come to CA$66.9 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of CA$6.47, the analyst price target of CA$7.46 is 13.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.