Expanding Into Individual Investor Channels Will Unlock Future Opportunities

Key Takeaways

• Expanding focus on private markets and direct investments may optimize the investment mix and lead to higher net margins.
  
• Tapping the individual investor channel with new products could drive long-term revenue growth and enhance shareholder returns.
  
• GCM Grosvenor faces risks in revenue growth due to market dependence, with challenges in individual investor expansion and reliance on favorable market conditions for growth.

Catalysts

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

• GCM Grosvenor expects to maintain a strong fundraising momentum, with late-stage pipeline opportunities showing significant growth, which could drive increased fee-related revenue growth.
  
• The company plans to continue expanding its focus on private markets and direct-oriented investment strategies, which may lead to higher net margins through a more optimized investment mix.
  
• GCM Grosvenor is tapping into the under-allocated individual investor channel, with plans to launch new interval fund private market products, potentially driving up long-term revenue.
  
• The firm sees significant latent earnings power in its incentive fee opportunity, which could lead to increased earnings growth as market conditions improve and carry fees are realized.
  
• GCM Grosvenor is committed to funding share buybacks to manage dilution and support EPS growth, which could lead to an enhanced shareholder return profile.

GCM Grosvenor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GCM Grosvenor's revenue will grow by 13.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 4.8% in 3 years time.
• Analysts expect earnings to reach $32.3 million (and earnings per share of $0.81) by about December 2027, up from $14.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2027 earnings, down from 38.3x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.4x.
• Analysts expect the number of shares outstanding to decline by 40.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

GCM Grosvenor Future Earnings Per Share Growth

Risks

• The firm's future revenue growth may be impacted by its aggressive reliance on increasing management fees, as uncertainties or unexpected changes in the market may pose risks to maintaining their projected growth rates.
  
• There is considerable execution risk associated with expanding their individual investor channel, with complex distribution partnerships needing to prove economically effective to achieve earnings growth.
  
• The expected increase in incentive fees, which are crucial for their projected growth in adjusted EBITDA and net income, is contingent on improvement in market conditions and an uptick in M&A activity, which carries uncertainty.
  
• The firm's outlook heavily depends on the sustained strong performance and growth of their private markets business; any downturn in client allocations or investment performance could negatively affect fee-related earnings and margins.
  
• The potential economic impact of any changes in the competitive landscape in private credit, especially if banks regain loan market share post-election, could result in slower-than-anticipated AUM growth or compression of net margins.

Valuation

• The analysts have a consensus price target of $13.9 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 $12.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $672.4 million, earnings will come to $32.3 million, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $12.22, the analyst's price target of $13.9 is 12.1% 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.