Earnings Expansion Will Continue Despite Shifting Market Expectations And Margin Pressure

Key Takeaways

• Growth in European ETFs and responsible investments could drive future revenue increases by capturing more market share.
  
• Strategic geographic expansion and partnerships in Asia suggest revenue growth via increased market penetration and client assets.
  
• Proposed French tax may reduce Amundi's net profits while strategic challenges and competition in Europe and Asia could affect growth and profitability.

Catalysts

Amundi is a publically owned investment manager.

• Amundi's strong growth in ETF assets and inflows, particularly with a focus on responsible investments, points to potential future revenue increases as the firm continues to capture significant market share in the European ETF market.
  
• The expansion in Technology & Services, with technology revenues up by 42%, highlights anticipated earnings growth as Amundi diversifies and increases its client base across geographies.
  
• The partnership with SBI in India and a direct presence in other Asian markets underscore an expected rise in revenues from increased market penetration and capturing growing client assets in these regions.
  
• Strategic investments in fixed income platforms, which have generated notable inflows, suggest enhanced long-term revenue growth driven by demand for secure and attractive return solutions.
  
• The successful integration of Alpha Associates and the planned partnership with Victory Capital indicate potential enhancements in net margins and earnings, leveraging synergies and expanded product offerings in private markets and U.S. opportunities.

Amundi Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Amundi's revenue will decrease by 19.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.8% today to 40.7% in 3 years time.
• Analysts expect earnings to reach €1.5 billion (and earnings per share of €7.35) by about June 2029, down from €1.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €1.8 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.6x on those 2029 earnings, up from 10.5x today. This future PE is greater than the current PE for the GB Capital Markets industry at 13.8x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.17%, as per the Simply Wall St company report.

Risks

• The exceptional tax contribution proposed by the French government could significantly impact Amundi's net profits, with estimated additional tax charges of between €60-70 million for 2024 and €40-50 million for 2025, potentially reducing net margins.
  
• Amundi's exit from a large European insurance multi-asset mandate results in the loss of €12 billion in AUM, which may negatively affect asset management fees and thus impact revenue growth.
  
• Continued competition in Italy, especially from sovereign bonds like BTPs, may lead to sustained outflows from Amundi's Italian retail networks, potentially affecting revenue and inflows.
  
• While Amundi sees growth in Asian joint ventures, challenges in the Chinese market, including regulatory changes and risk aversion from clients, have led to net outflows in certain areas, potentially impacting overall earnings.
  
• The anticipated change in interest rates may affect the shift between treasury assets and more lucrative active and passive funds, which could delay improvements in margins and revenue growth if retail investors remain risk-averse.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €85.44 for Amundi 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 €95.0, and the most bearish reporting a price target of just €72.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €3.6 billion, earnings will come to €1.5 billion, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 10.2%.
• Given the current share price of €84.25, the analyst price target of €85.44 is 1.4% 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.