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AGF Management Ltd. is expected to report much improved first-quarter results next Wednesday but uncertainty continues to dog the mutual fund company, said John Aiken of National Bank Financial Inc.

The analyst expects the Toronto company to report share profit of 24 cents for the three-month period ended Feb. 28, flat compared with 24 cents earned for the same period a year ago but up dramatically from the 13 cents a share reported in the firm's fourth quarter ended Nov. 30.

Strong performance by AGF's fund managers, about $230-million in retirement savings plan loans from the firm's trust company unit and a return to positive net sales are driving gains, Mr. Aiken said in his March 21 report. In February, AGF reported mutual fund net sales of $29-million, ending about four years of net redemptions.

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While net sales are a "definitive positive step," the company's sales turnaround raises questions about future margins. A key source of earnings for AGF and other fund companies struggling to overcome redemptions are deferred sales charges (DSC), fees unitholders must pay if they choose to sell a fund prior to the expiry of the typically seven-year DSC schedule.

"There is still significant work to do with questions regarding future margins compounded by the uncertainty surrounding the impact that lower redemption levels will have on near-term profitability," Mr. Aiken said.

The analyst is maintaining an "underperform" rating on AGF shares and his $21 12-month stock target in unchanged.

In trading on the Toronto Stock Exchange yesterday, AGF's shares fell 11 cents to $23.75.

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