AGF Management Ltd. shares have been treading water for the past six months, unable to break out of a fairly tight trading range. What could give them a boost? A stock market rally would help, but what are the odds of that?
Geoffrey Kwan, an analyst at RBC Dominion Securities, apparently thinks they are slim. He downgraded his recommendation on AGF to "sector perform" from "outperform" and cut his target price to $20 from $23, ahead of the company's fiscal second quarter earnings release on Wednesday.
"Our Sector Perform rating reflects our view that AGF's shares are fairly valued..., but absent a rally in equity markets, lack a positive catalyst in the near term," he said in a note.
AGF, he pointed out, is particularly vulnerable to conditions in the broader market because its retail mutual funds have a higher exposure to equities, and international equities in particular.
At the same time, the company is already suffering from competitive strains. Its fund performance continues to lag peers, and net redemptions are not improving. Mr. Kwan said that of the 14 mutual funds with more than $500-million in assets under management, just one fund is posting positive net sales (that would be the emerging markets fund).
Still, there is some good news here. Mr. Kwan said that the AGF Trust unit is overcapitalized, with far more assets stuffed into its back pocket than are necessary. The company could take out about $100-million in capital to increase the dividend, fund share buybacks or repay debt.
David Berman