Intrinsic value of Affiliated Managers Group, Inc. - AMG

Previous Close

$87.98

  Intrinsic Value

$229.71

stock screener

  Rating & Target

str. buy

+161%

Previous close

$87.98

 
Intrinsic value

$229.71

 
Up/down potential

+161%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as AMG.

We calculate the intrinsic value of AMG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,426
  2,481
  2,545
  2,617
  2,696
  2,783
  2,878
  2,980
  3,091
  3,210
  3,337
  3,472
  3,616
  3,769
  3,932
  4,104
  4,287
  4,480
  4,683
  4,899
  5,126
  5,365
  5,617
  5,883
  6,163
  6,458
  6,769
  7,095
  7,439
  7,801
Variable operating expenses, $m
  1,588
  1,616
  1,647
  1,682
  1,721
  1,764
  1,811
  1,861
  1,916
  1,974
  1,642
  1,709
  1,780
  1,855
  1,935
  2,020
  2,110
  2,205
  2,305
  2,411
  2,523
  2,641
  2,765
  2,896
  3,034
  3,179
  3,332
  3,492
  3,661
  3,839
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,588
  1,616
  1,647
  1,682
  1,721
  1,764
  1,811
  1,861
  1,916
  1,974
  1,642
  1,709
  1,780
  1,855
  1,935
  2,020
  2,110
  2,205
  2,305
  2,411
  2,523
  2,641
  2,765
  2,896
  3,034
  3,179
  3,332
  3,492
  3,661
  3,839
Operating income, $m
  837
  866
  898
  934
  975
  1,019
  1,067
  1,119
  1,175
  1,236
  1,694
  1,763
  1,836
  1,914
  1,997
  2,084
  2,177
  2,275
  2,378
  2,488
  2,603
  2,724
  2,853
  2,988
  3,130
  3,280
  3,437
  3,603
  3,778
  3,961
EBITDA, $m
  1,304
  1,334
  1,368
  1,407
  1,449
  1,496
  1,547
  1,602
  1,662
  1,725
  1,794
  1,866
  1,944
  2,026
  2,114
  2,206
  2,304
  2,408
  2,518
  2,633
  2,755
  2,884
  3,020
  3,163
  3,313
  3,472
  3,639
  3,814
  3,999
  4,193
Interest expense (income), $m
  85
  99
  104
  110
  117
  125
  133
  143
  153
  164
  176
  189
  203
  217
  233
  249
  267
  286
  305
  326
  348
  372
  396
  422
  449
  478
  508
  540
  574
  609
  646
Earnings before tax, $m
  739
  762
  788
  817
  850
  886
  924
  966
  1,011
  1,060
  1,505
  1,560
  1,619
  1,681
  1,747
  1,817
  1,891
  1,969
  2,052
  2,139
  2,231
  2,328
  2,431
  2,538
  2,652
  2,771
  2,897
  3,029
  3,168
  3,315
Tax expense, $m
  199
  206
  213
  221
  230
  239
  250
  261
  273
  286
  406
  421
  437
  454
  472
  491
  511
  532
  554
  578
  602
  629
  656
  685
  716
  748
  782
  818
  855
  895
Net income, $m
  539
  556
  575
  597
  621
  647
  675
  705
  738
  773
  1,099
  1,139
  1,182
  1,227
  1,275
  1,327
  1,381
  1,438
  1,498
  1,562
  1,629
  1,700
  1,774
  1,853
  1,936
  2,023
  2,115
  2,211
  2,313
  2,420

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  8,194
  8,383
  8,598
  8,840
  9,108
  9,402
  9,723
  10,069
  10,443
  10,843
  11,272
  11,730
  12,217
  12,734
  13,284
  13,866
  14,482
  15,134
  15,822
  16,549
  17,316
  18,125
  18,978
  19,876
  20,823
  21,819
  22,868
  23,971
  25,132
  26,353
Adjusted assets (=assets-cash), $m
  8,194
  8,383
  8,598
  8,840
  9,108
  9,402
  9,723
  10,069
  10,443
  10,843
  11,272
  11,730
  12,217
  12,734
  13,284
  13,866
  14,482
  15,134
  15,822
  16,549
  17,316
  18,125
  18,978
  19,876
  20,823
  21,819
  22,868
  23,971
  25,132
  26,353
Revenue / Adjusted assets
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
  0.296
Average production assets, $m
  2,164
  2,213
  2,270
  2,334
  2,405
  2,483
  2,567
  2,659
  2,757
  2,863
  2,976
  3,097
  3,226
  3,362
  3,507
  3,661
  3,824
  3,996
  4,178
  4,370
  4,572
  4,786
  5,011
  5,248
  5,498
  5,761
  6,038
  6,329
  6,636
  6,958
Working capital, $m
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -74
  -78
Total debt, $m
  1,927
  2,039
  2,167
  2,310
  2,469
  2,643
  2,833
  3,039
  3,260
  3,498
  3,752
  4,024
  4,312
  4,619
  4,945
  5,290
  5,656
  6,042
  6,450
  6,882
  7,336
  7,816
  8,322
  8,855
  9,416
  10,007
  10,628
  11,283
  11,971
  12,695
Total liabilities, $m
  4,859
  4,971
  5,099
  5,242
  5,401
  5,576
  5,765
  5,971
  6,192
  6,430
  6,684
  6,956
  7,244
  7,551
  7,877
  8,222
  8,588
  8,974
  9,383
  9,814
  10,269
  10,748
  11,254
  11,787
  12,348
  12,939
  13,560
  14,215
  14,903
  15,627
Total equity, $m
  3,335
  3,412
  3,500
  3,598
  3,707
  3,827
  3,957
  4,098
  4,250
  4,413
  4,588
  4,774
  4,972
  5,183
  5,406
  5,643
  5,894
  6,159
  6,440
  6,736
  7,048
  7,377
  7,724
  8,090
  8,475
  8,880
  9,307
  9,756
  10,229
  10,726
Total liabilities and equity, $m
  8,194
  8,383
  8,599
  8,840
  9,108
  9,403
  9,722
  10,069
  10,442
  10,843
  11,272
  11,730
  12,216
  12,734
  13,283
  13,865
  14,482
  15,133
  15,823
  16,550
  17,317
  18,125
  18,978
  19,877
  20,823
  21,819
  22,867
  23,971
  25,132
  26,353
Debt-to-equity ratio
  0.580
  0.600
  0.620
  0.640
  0.670
  0.690
  0.720
  0.740
  0.770
  0.790
  0.820
  0.840
  0.870
  0.890
  0.910
  0.940
  0.960
  0.980
  1.000
  1.020
  1.040
  1.060
  1.080
  1.090
  1.110
  1.130
  1.140
  1.160
  1.170
  1.180
Adjusted equity ratio
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  539
  556
  575
  597
  621
  647
  675
  705
  738
  773
  1,099
  1,139
  1,182
  1,227
  1,275
  1,327
  1,381
  1,438
  1,498
  1,562
  1,629
  1,700
  1,774
  1,853
  1,936
  2,023
  2,115
  2,211
  2,313
  2,420
Depreciation, amort., depletion, $m
  466
  468
  470
  472
  474
  477
  480
  483
  486
  490
  99
  103
  108
  112
  117
  122
  127
  133
  139
  146
  152
  160
  167
  175
  183
  192
  201
  211
  221
  232
Funds from operations, $m
  1,006
  1,024
  1,045
  1,069
  1,095
  1,124
  1,155
  1,188
  1,224
  1,263
  1,198
  1,242
  1,289
  1,339
  1,392
  1,449
  1,508
  1,571
  1,637
  1,707
  1,781
  1,859
  1,941
  2,028
  2,119
  2,215
  2,316
  2,422
  2,534
  2,652
Change in working capital, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from operations, $m
  1,006
  1,025
  1,046
  1,070
  1,096
  1,124
  1,156
  1,189
  1,226
  1,264
  1,199
  1,244
  1,291
  1,341
  1,394
  1,450
  1,510
  1,573
  1,639
  1,709
  1,783
  1,862
  1,944
  2,031
  2,122
  2,218
  2,319
  2,426
  2,538
  2,655
Maintenance CAPEX, $m
  -71
  -72
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -92
  -95
  -99
  -103
  -108
  -112
  -117
  -122
  -127
  -133
  -139
  -146
  -152
  -160
  -167
  -175
  -183
  -192
  -201
  -211
  -221
New CAPEX, $m
  -42
  -50
  -57
  -64
  -71
  -78
  -85
  -92
  -99
  -106
  -113
  -121
  -129
  -137
  -145
  -154
  -163
  -172
  -182
  -192
  -203
  -214
  -225
  -237
  -250
  -263
  -277
  -291
  -307
  -322
Cash from investing activities, $m
  -113
  -122
  -131
  -140
  -149
  -158
  -168
  -178
  -188
  -198
  -208
  -220
  -232
  -245
  -257
  -271
  -285
  -299
  -315
  -331
  -349
  -366
  -385
  -404
  -425
  -446
  -469
  -492
  -518
  -543
Free cash flow, $m
  893
  903
  915
  930
  947
  967
  988
  1,012
  1,038
  1,067
  991
  1,024
  1,059
  1,097
  1,137
  1,180
  1,225
  1,273
  1,324
  1,378
  1,435
  1,496
  1,559
  1,626
  1,697
  1,772
  1,850
  1,933
  2,020
  2,112
Issuance/(repayment) of debt, $m
  98
  112
  128
  143
  159
  174
  190
  206
  221
  238
  254
  271
  289
  307
  326
  345
  365
  386
  408
  431
  455
  480
  506
  533
  561
  591
  622
  654
  688
  724
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  98
  112
  128
  143
  159
  174
  190
  206
  221
  238
  254
  271
  289
  307
  326
  345
  365
  386
  408
  431
  455
  480
  506
  533
  561
  591
  622
  654
  688
  724
Total cash flow (excl. dividends), $m
  991
  1,015
  1,043
  1,073
  1,106
  1,141
  1,178
  1,218
  1,260
  1,304
  1,245
  1,295
  1,348
  1,404
  1,463
  1,525
  1,590
  1,660
  1,733
  1,809
  1,890
  1,975
  2,065
  2,159
  2,258
  2,362
  2,472
  2,587
  2,708
  2,836
Retained Cash Flow (-), $m
  -61
  -77
  -88
  -98
  -109
  -120
  -130
  -141
  -152
  -163
  -174
  -186
  -198
  -211
  -224
  -237
  -251
  -265
  -280
  -296
  -312
  -329
  -347
  -366
  -385
  -405
  -427
  -449
  -472
  -497
Prev. year cash balance distribution, $m
  184
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  1,113
  938
  955
  975
  997
  1,021
  1,048
  1,077
  1,108
  1,141
  1,071
  1,109
  1,150
  1,193
  1,239
  1,288
  1,340
  1,394
  1,452
  1,513
  1,578
  1,646
  1,718
  1,793
  1,873
  1,957
  2,045
  2,138
  2,236
  2,339
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  1,067
  859
  831
  803
  773
  741
  708
  673
  636
  598
  508
  473
  437
  401
  364
  327
  291
  257
  224
  192
  163
  137
  113
  91
  73
  57
  44
  33
  24
  18
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Affiliated Managers Group, Inc. is an asset management company with equity investments in boutique investment management firms. The Company operates in three segments, which represent its principal distribution channels: Institutional, Mutual Fund and High Net Worth. The equity method investments in the Institutional distribution channel are made in relationships with public and private client entities, including foundations, endowments, sovereign wealth funds and retirement plans for corporations and municipalities. The equity method investments in the Mutual Fund distribution channel are made in advisory or sub-advisory relationships with active return-oriented mutual funds, Undertakings for Collective Investment in Transferable Securities and other retail products. The equity method investments in the High Net Worth distribution channel are made in relationships with high net worth and ultra-high net worth individuals, families, trusts, foundations, endowments and retirement plans.

FINANCIAL RATIOS  of  Affiliated Managers Group, Inc. (AMG)

Valuation Ratios
P/E Ratio 10.9
Price to Sales 2.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 5.1
Growth Rates
Sales Growth Rate -11.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -47.4%
Cap. Spend. - 3 Yr. Gr. Rate -3.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 58.3%
Total Debt to Equity 58.3%
Interest Coverage 12
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 9.1%
Ret/ On T. Cap. - 3 Yr. Avg. 10.3%
Return On Equity 14.7%
Return On Equity - 3 Yr. Avg. 17.2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 54.2%
EBITDA Margin - 3 Yr. Avg. 51.7%
Operating Margin 32.2%
Oper. Margin - 3 Yr. Avg. 32.7%
Pre-Tax Margin 44.4%
Pre-Tax Margin - 3 Yr. Avg. 42.9%
Net Profit Margin 21.5%
Net Profit Margin - 3 Yr. Avg. 19.8%
Effective Tax Rate 24.2%
Eff/ Tax Rate - 3 Yr. Avg. 24.3%
Payout Ratio 0%

AMG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMG stock intrinsic value calculation we used $2378 million for the last fiscal year's total revenue generated by Affiliated Managers Group, Inc.. The default revenue input number comes from 0001 income statement of Affiliated Managers Group, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AMG stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AMG is calculated based on our internal credit rating of Affiliated Managers Group, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Affiliated Managers Group, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AMG stock the variable cost ratio is equal to 65.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AMG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Affiliated Managers Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for Affiliated Managers Group, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AMG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AMG are equal to 89.2%.

Life of production assets of 188 years is the average useful life of capital assets used in Affiliated Managers Group, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AMG is equal to -1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3457.4 million for Affiliated Managers Group, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 52.035 million for Affiliated Managers Group, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Affiliated Managers Group, Inc. at the current share price and the inputted number of shares is $4.6 billion.

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