Global Infrastructure And Retirement Services Will Boost Market Financing

Key Takeaways

• Strategic focus on global industrial transformations and retirement services is expected to drive revenue and spread-related earnings growth.
  
• Expanding investor base and strategic acquisitions boost fee-related earnings and enhance origination capabilities to service private market demands.
  
• Internal execution challenges and competition in origination markets could hinder growth, while regulatory uncertainty and interest rate changes may impact margins and earnings.

Catalysts

A private equity firm specializing in investments in credit, private equity, infrastructure, secondaries and real estate markets.

• Apollo's strategic focus on significant global industrial transformations, including energy, infrastructure, and next-generation manufacturing, is expected to drive substantial capital origination, impacting revenue growth by capturing market demand for bespoke financing solutions.
  
• The firm's emphasis on expanding its retirement services, particularly through innovative products and leveraging its position as a leader in retirement income solutions, is likely to enhance its spread-related earnings by capturing a larger share of the vast retirement market.
  
• Increasing engagement with individual investors and the growth in global wealth channels, with record inflows and a diversified portfolio of products, is anticipated to boost fee-related earnings by expanding its investor base and deploying semi-liquid and innovative investment products tailored to this demographic.
  
• Apollo's proactive focus on improving its origination capabilities through strategic acquisitions like Argo, aimed at enhancing infrastructure asset origination, positions the company to capture higher revenue by utilizing expanded origination to service scalable private market demands.
  
• The firm's strategic positioning within the convergence of public and private markets, leveraging its ability to offer superior customized financial solutions, stands to drive growth in management fees by meeting increasing institutional and individual demand for integrated asset solutions.

Apollo Global Management Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Apollo Global Management compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Apollo Global Management's revenue will decrease by 37.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.7% today to 89.7% in 3 years time.
• The bullish analysts expect earnings to reach $5.6 billion (and earnings per share of $10.67) by about April 2028, up from $4.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.7x on those 2028 earnings, up from 18.1x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.2x.
• Analysts expect the number of shares outstanding to grow by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.67%, as per the Simply Wall St company report.

Apollo Global Management Future Earnings Per Share Growth

Risks

• The focus on internal execution challenges signifies that any setbacks could impede growth targets, potentially affecting revenue forecasts.
  
• The reliance on origination capability as a growth limiter suggests that any disruption could hinder revenue generation and future margin expansion.
  
• Increased competition, particularly in the annuity and credit origination markets, could pressure revenue growth and net margins, especially if rivals undercut rates or offer more attractive terms.
  
• Regulatory uncertainty, especially around potential legislative changes affecting retirement solutions and insurance, could impact existing revenue streams or incur unforeseen compliance costs, thereby affecting net earnings.
  
• Changes in interest rates, with the company preparing for a range of outcomes, could impact net margins and earnings, particularly if rate environments shift contrary to their expectations.
  

Valuation

• The assumed bullish price target for Apollo Global Management is $193.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Apollo Global Management's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $193.0, and the most bearish reporting a price target of just $124.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $6.3 billion, earnings will come to $5.6 billion, and it would be trading on a PE ratio of 24.7x, assuming you use a discount rate of 7.7%.
• Given the current share price of $137.55, the bullish analyst price target of $193.0 is 28.7% 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.