Expanding Infrastructure And Private Credit Capabilities Will Fuel Future Opportunities

Key Takeaways

• Expected strong growth in fee-related earnings and margins, driven by successful fundraising and increased investment capabilities, promises solid future revenue prospects.
  
• Expanding infrastructure and private credit investments, alongside robust performance in Absolute Return Strategies, indicates potential for sustained fee-related revenue growth.
  
• GCM Grosvenor faces uncertainty in revenue growth due to reliance on non-fee-paying assets and evolving market strategies.

Catalysts

GCM Grosvenor Inc. is global alternative asset management solutions provider.

• The expected doubling of 2023 fee-related earnings by 2028 is driven by significant growth in fundraising and profit, with a strong 2024 performance indicating solid future revenue prospects.
  
• Continuing improvement and operating leverage in fee-related earnings margin, which increased to 42% in 2024 from 38% in 2023, shows potential for further margin expansion.
  
• Robust fundraising pipeline expected to exceed 2024's $7.1 billion, along with successful fundraising for private market specialized funds, could increase future revenue and earnings.
  
• Expanding investment capabilities, particularly in infrastructure and private credit, and strong recent performance in Absolute Return Strategies platform indicates potential for growth in fee-related and performance-based revenue.
  
• Growth in contracted, not yet fee-paying AUM by 12% in 2024 to a record $8.2 billion provides a solid foundation for future revenue growth as this converts to fee-paying AUM.

GCM Grosvenor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GCM Grosvenor's revenue will grow by 9.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.7% today to 5.7% in 3 years time.
• Analysts expect earnings to reach $37.9 million (and earnings per share of $0.78) by about March 2028, up from $18.7 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 102.1x on those 2028 earnings, up from 31.9x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 1.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

GCM Grosvenor Future Earnings Per Share Growth

Risks

• There are significant elements of uncertainty and risk due to the reliance on forward-looking statements, which may cause actual financial performance to differ materially from projections, potentially impacting revenue and earnings.
  
• A significant portion of GCM Grosvenor's pipeline involves contracted assets that are not yet fee-paying, leading to uncertainty in when they will convert to fee-paying assets, which might delay anticipated revenue growth.
  
• The co-investment and private equity seeding strategies, such as the Elevate Fund, are viewed as respectable but challenging in difficult markets, indicating execution risk which may affect revenue if particular strategies do not perform as expected.
  
• The individual investor channel expansion and infrastructure fund growth are projected to require time before becoming significant revenue contributors, demonstrating risk in their current lack of immediate significant contribution to revenue growth.
  
• The current market environment impact on carry realizations and catch-up fees, as noted by the interim carry results and reliance on improving conditions, present uncertainties that could affect net margins and earnings growth expectations.

Valuation

• The analysts have a consensus price target of $15.7 for GCM Grosvenor 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 $20.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $667.0 million, earnings will come to $37.9 million, and it would be trading on a PE ratio of 102.1x, assuming you use a discount rate of 7.5%.
• Given the current share price of $13.26, the analyst price target of $15.7 is 15.5% 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.