Mandate Losses And Fees Will Impede Recovery But Spur Resilience

Key Takeaways

• Reliance on ESG themes, client losses, and exposure to regulatory shifts challenge revenue growth and magnify risks to asset and earnings stability.
  
• Rising competition from passive ESG products and elevated costs may constrain margin recovery, even as platform expansion and cost-cutting efforts continue.
  
• Loss of key clients, sector concentration, fee pressure, and elevated costs threaten Impax's revenue growth, margins, and long-term financial stability.

Catalysts

A publicly owned investment manager.

• While Impax has a long record and strong brand in sustainable asset management, recent performance has been weighed down by significant outflows, including the loss of the St. James's Place mandate and some large Asia-Pacific clients, resulting in shrinking AUM and declining revenue. The risk remains that over-reliance on ESG/impact themes, which are sensitive to political shifts and regulatory scrutiny, could continue to pressure net inflows and hamper the company's ability to recover revenue growth in the medium term.
  
• Although the company is benefiting from a generational shift towards ESG investing and expects secular growth in sustainable finance, these tailwinds may be partially offset by intensifying fee pressure as passive ESG products and low-cost ETFs proliferate, limiting margin recovery even as the company scales its platform and grows AUM.
  
• While Impax is diversifying its platform via acquisitions in fixed income and expanding geographically, integration costs, client concentration risk, and the challenge of replacing lost mandates mean that the anticipated AUM and revenue growth from these expansions remains uncertain and could be slow to materialize.
  
• Despite implementing a cost reduction program yielding approximately £11 million in annual savings and offsetting some revenue declines, elevated personnel and research expenses necessary to maintain ESG leadership may erode future operating leverage, limiting improvements in net margins as AUM normalizes.
  
• While tighter global regulations on climate and ESG disclosures offer strategic advantages to specialist managers, persistent skepticism around ESG-including greenwashing concerns and shifting political attitudes, particularly in the US-pose risks to the appeal and stickiness of Impax's investment products, increasing the risk of redemption-driven earnings volatility.

Impax Asset Management Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Impax Asset Management Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Impax Asset Management Group's revenue will decrease by 5.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 19.2% today to 19.6% in 3 years time.
• The bearish analysts expect earnings to reach £26.5 million (and earnings per share of £0.21) by about July 2028, down from £30.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from 8.5x today. This future PE is greater than the current PE for the GB Capital Markets industry at 13.6x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.13%, as per the Simply Wall St company report.

Impax Asset Management Group Future Earnings Per Share Growth

Risks

• The persistent net outflows in assets under management, notably the loss of large mandates from clients like St. James's Place and certain Asia-Pacific institutions, expose Impax to top-line revenue pressure and ongoing earnings instability if replaced only slowly or at lower fee levels.
  
• Sustained underperformance of key equity strategies relative to generic benchmarks over multiple years poses a risk of disappointing institutional investors, leading to further redemption risk and shrinkage in AUM and revenue.
  
• The company's heavy concentration in sustainability and ESG investing subjects it to sector concentration risk and vulnerability to political backlash or regulatory shifts-especially in the US-potentially reducing investor appetite, therefore limiting future inflows and revenue growth.
  
• Ongoing industry fee compression combined with the popularity of low-cost ESG ETFs and index products may erode pricing power for active managers like Impax, putting downward pressure on margins and overall profitability.
  
• Despite some cost reductions, the company faces high ongoing personnel and research expenses to retain ESG expertise and competitiveness, which, if AUM growth does not accelerate, could compress net margins and reduce long-term earnings potential.

Valuation

• The assumed bearish price target for Impax Asset Management Group is £2.25, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Impax Asset Management Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.0, and the most bearish reporting a price target of just £2.25.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £135.2 million, earnings will come to £26.5 million, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of £2.05, the bearish analyst price target of £2.25 is 8.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.