Investments In AI And New Products May Broaden Revenue Streams, But Reliance On BNP Paribas Will Remain A Concern

Key Takeaways

• Expanding product range and strategic acquisitions aim to drive revenue growth and strengthen capabilities in new market segments.
  
• Investments in efficiency, AI, and private markets are likely to enhance margins and diversify revenue streams significantly.
  
• Impax's sustained underperformance, reliance on BNP Paribas, and market challenges could affect client retention, revenue diversification, and future growth amid high interest rates.

Catalysts

A publicly owned investment manager.

• Impax Asset Management Group is expanding its product range with new thematic and fixed income products, which may drive future revenue growth as they attract a more diverse client base and tap into new market segments.
  
• The company's strategic acquisitions in the fixed income space, including a completed acquisition in Denmark and a pending larger acquisition in the U.S, are expected to enhance earnings by strengthening capabilities and expanding market reach.
  
• Investment in efficiency improvements and AI for cost management is likely to positively impact net margins by reducing operating costs and optimizing processes.
  
• The company's plans to launch a fifth private equity renewable energy fund and explore new areas in private markets, such as real estate and infrastructure, may boost revenue and diversify the revenue streams.
  
• Impax's robust global distribution network and initiatives to broaden its reach through third-party distributors and direct sales may enhance assets under management, positively influencing future revenue growth.

Impax Asset Management Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Impax Asset Management Group's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.4% today to 20.9% in 3 years time.
• Analysts expect earnings to reach £37.2 million (and earnings per share of £0.28) by about February 2028, up from £36.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £43 million in earnings, and the most bearish expecting £31.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, up from 6.6x today. This future PE is greater than the current PE for the GB Capital Markets industry at 11.9x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

Impax Asset Management Group Future Earnings Per Share Growth

Risks

• Impax has experienced a period of sustained relative underperformance compared to benchmarks, which could impact its ability to attract and retain clients, thereby affecting revenues and earnings.
  
• The company's assets under management have remained relatively flat for the past four years, indicating potential challenges in increasing asset inflows, which could impact future revenue growth.
  
• A significant portion of Impax's revenue is dependent on BNP Paribas Asset Management, accounting for over 25% of revenues. If this partnership weakens or changes, it could affect revenue diversification and stability.
  
• Impax's equity funds face market concentration challenges, particularly not benefiting from the mega cap tech stock boom, which could impact relative investment performance and, consequently, client retention and revenue.
  
• The potential for sustained high interest rates may negatively impact growth-oriented investments, thereby affecting Impax's asset valuations, client attraction, and ultimately, operating margins and profits.

Valuation

• The analysts have a consensus price target of £4.33 for Impax Asset Management Group 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 £6.0, and the most bearish reporting a price target of just £3.05.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £178.5 million, earnings will come to £37.2 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of £1.87, the analyst price target of £4.33 is 56.7% 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.