Amundi Partnership Will Expand Global Distribution And Open New International Channels

Key Takeaways

• Strategic partnerships and acquisitions are poised to boost revenue through enhanced global distribution and increased operational leverage.
  
• Strong fixed income product sales and tactical cost management are expected to enhance earnings and improve net margins.
  
• Successful integration with Amundi is crucial for realizing synergies and avoiding disruptions, amid industry consolidation and market condition risks.

Catalysts

Operates as an asset management company in the United States and internationally.

• The strategic transaction with Amundi is expected to expand Victory Capital's scale and distribution capabilities, driving long-term revenue growth through enhanced access to international markets.
  
• Victory Capital's planned accretive acquisitions, fueled by a stronger balance sheet post-Amundi transaction, suggest potential future earnings growth from increased operational leverage and strategic expansion.
  
• The exclusive distribution agreement with Amundi is projected to deliver significant revenue synergies by opening new global channels, potentially boosting overall revenues.
  
• The continued positive net flows in Victory Income Investors, coupled with a strong selling environment for fixed income products, highlight potential growth in assets under management and associated revenue escalation.
  
• Victory Capital's increasing scale and operational leverage from expanded assets under management could drive improved net margins and earnings, supported by consistently strong investment performance and tactical cost management initiatives.

Victory Capital Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Victory Capital Holdings's revenue will grow by 32.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.8% today to 33.2% in 3 years time.
• Analysts expect earnings to reach $667.6 million (and earnings per share of $6.95) by about December 2027, up from $267.1 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 12.1x on those 2027 earnings, down from 16.1x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.5x.
• Analysts expect the number of shares outstanding to grow by 13.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

Victory Capital Holdings Future Earnings Per Share Growth

Risks

• The completion of the transaction with Amundi is contingent upon regulatory approvals and closing conditions, introducing uncertainty and potential delays, which could impact projected revenue and earnings growth.
  
• The reliance on positive investment performance and mutual fund net flows from Amundi U.S. to boost assets under management carries inherent risks if market conditions deteriorate, which could negatively affect revenue and margins.
  
• The revenue synergies and $100 million expense synergies from the Amundi transaction depend on successful integration and execution, which can pose operational challenges and risks to expected earnings.
  
• Consolidation in the investment management industry is anticipated, but successful acquisition integration requires careful execution and cultural alignment to avoid disruptions that can affect net margins and profit growth.
  
• Mixed net flows from different franchises show fluctuations, highlighting the risk of portfolio rebalancing or market sentiment shifts that could negatively impact organic growth and earnings stability.

Valuation

• The analysts have a consensus price target of $67.89 for Victory Capital Holdings 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 $75.0, and the most bearish reporting a price target of just $57.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.0 billion, earnings will come to $667.6 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 7.3%.
• Given the current share price of $66.17, the analyst's price target of $67.89 is 2.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.