Digital Bank Launch And Tactical Partnerships Expected To Boost Revenue, But Regulatory Risks May Erode Margins

Key Takeaways

• Strategic exits and partnerships, such as with Oaktree, will generate capital and enhance revenue, supporting future earnings through joint ventures.
  
• Global expansion and management fee improvements are set to diversify revenue and sustain long-term earnings growth, with a robust focus on private markets.
  
• The dependence on the New Bank Project and geographic expansion exposes Azimut to regulatory and execution risks that could affect profitability and margins.

Catalysts

Engages in the asset management business.

• Exiting the GP staking business and strategic partnerships, like the one with Oaktree, are expected to inject significant capital and create value, positively impacting future earnings and revenue streams by participating in the growth of joint ventures.
  
• The reorganization of the Italian FA network to create a digital bank aims to capture net interest income (NII) from deposits, potentially boosting net margins and revenue by creating a new income stream from banking services.
  
• Significant growth in assets under management, aided by acquisitions and market conditions, suggests a positive outlook on revenue and management fees, with a stable recurring margin poised to improve net margins.
  
• The global expansion strategy, including managing foreign investments and acquisitions like tru Independence, aims to diversify and stabilize revenue across markets, which could enhance earnings by leveraging high-growth regions like Australia and Brazil.
  
• Performance improvements in fees, particularly management and performance fees, alongside a focus on private market initiatives, are catalysts for increased revenue, positioning the company to sustain long-term earnings growth.

Azimut Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Azimut Holding's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.9% today to 30.5% in 3 years time.
• Analysts expect earnings to reach €501.4 million (and earnings per share of €3.38) by about December 2027, down from €531.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €599.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2027 earnings, up from 6.3x today. This future PE is lower than the current PE for the GB Capital Markets industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 1.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.92%, as per the Simply Wall St company report.

Azimut Holding Future Earnings Per Share Growth

Risks

• The company's financial performance is heavily reliant on capturing net interest income through the New Bank Project. However, the project depends on complex negotiations and regulatory approvals, which could delay or impact its future profitability and margins.
  
• The spin-off and potential listing of the fintech bank introduces uncertainty, requiring significant capital and execution risk, which could strain Azimut's resources and affect its ability to secure financing at favorable terms, impacting overall earnings.
  
• Azimut’s geographic expansion strategy, particularly their reliance on markets like Australia and Turkey, exposes them to foreign regulatory risks and market volatility, which could impact revenue stability and profit margins.
  
• The business model involves complex financial structures like the sale of stakes, GP staking, and international consolidation. These could pose management and integration risks, affecting long-term revenue and net margins if not executed properly.
  
• High distribution and personnel costs rising alongside performance increases pose a risk if revenue growth slows, which could erode net margins and profitability.

Valuation

• The analysts have a consensus price target of €26.36 for Azimut Holding 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 €28.6, and the most bearish reporting a price target of just €23.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €1.6 billion, earnings will come to €501.4 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of €23.74, the analyst's price target of €26.36 is 9.9% 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.