Regional Platforms Will Increase Client Engagement And Drive Net Inflows

Key Takeaways

• Fiera Capital's regional distribution model aims to improve client engagement, supporting sustainable inflows and revenue growth.
  
• Focus on private market strategies and high-growth sectors is expected to diversify revenue streams and drive earnings.
  
• Declining performance fees, client attrition, and rising expenses indicate revenue growth challenges and financial vulnerabilities, exacerbated by U.S. market concentration risks.

Catalysts

An employee owned investment manager.

• The decentralization of Fiera Capital's distribution model into regional platforms is expected to enhance localized client engagement and market penetration, potentially driving sustainable net inflows and positively impacting revenues.
  
• The company is experiencing significant interest in its private market strategies, particularly in agriculture and private credit, due to market conditions favoring nontraditional income sources. This is anticipated to bolster base management fees and enhance earnings through diversified revenue streams.
  
• Institutional inflows into private market segments such as agriculture, real estate, and infrastructure are increasing, driven by high performance and strategic consultant buy-in. This should contribute to revenue growth through increased base management fees and potentially higher performance fees.
  
• With the major outflows related to PineStone sub-advised mandates now largely behind them, Fiera Capital expects to stabilize and achieve organic net inflows, which will improve overall asset management and base fees, supporting earnings growth.
  
• Strategic focus on investment in high-growth sectors within private equity and infrastructure offers potential for enhanced long-term returns, increasing the firm's overall value and positively impacting net margins and earnings.

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$0.81) 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 16.5x on those 2028 earnings, down from 25.9x today. This future PE is greater than the current PE for the CA Capital Markets industry at 11.7x.
• Analysts expect the number of shares outstanding to grow by 1.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.21%, as per the Simply Wall St company report.

Fiera Capital Future Earnings Per Share Growth

Risks

• The decline in performance fees by $28 million year-over-year, largely in Q4 of 2024 compared to the same quarter in 2023, poses a risk to revenue growth, indicating potential underperformance in certain strategies compared to previous periods.
  
• The impact of significant net outflows due to PineStone sub-advised mandates indicates potential issues in sustaining revenue within the public markets segment because of client attrition.
  
• Increased SG&A and share-based compensation expenses—especially an unexpected $4 million rise due to accelerated long-term incentive awards—could pressure net margins if these trends continue without corresponding revenue growth.
  
• Rising net debt and leverage ratios, with a reported net debt ratio increase to 3.3x, highlight potential vulnerabilities in financial flexibility, which could affect the company's ability to finance growth without impacting earnings.
  
• The concentration risk in the U.S. equity market, with significant performance dependence on a small number of stocks, could affect earnings and investment returns negatively amid market volatility, particularly if the Magnificent 7 experience downturns.

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 16.5x, assuming you use a discount rate of 9.2%.
• Given the current share price of CA$6.01, the analyst price target of CA$7.46 is 19.4% 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.