AMK - AssetMark Sees Asset Inflow Improvement But Leading Indicators Are Cloudy
2023-07-28 19:04:54 ET
Summary
- AssetMark Financial Holdings, Inc. provides a wealth management platform for advisors and their clients in the U.S.
- The firm has seen advisors "go on offense" so far in 2023.
- However, leading economic indicators suggest a recession ahead, so I'm cautious about the period ahead.
- My outlook on AssetMark Financial Holdings is Neutral [Hold] in the near term.
A Quick Take On AssetMark
AssetMark Financial Holdings, Inc. ( AMK ) has created a wealth management platform for independent financial advisors and their clients.
I previously wrote about AMK in 2020 with a Hold outlook.
Markets have been difficult to predict, so while investors appear to have moved 'on offense' in the first of 2023, I'm more cautious, so I'm Neutral [Hold] about AssetMark Financial Holdings, Inc. stock for the near term.
AssetMark Overview And Market
Concord, California-based AssetMark Financial Holdings, Inc. was founded in 1996 to provide financial advisers with wealth management and client engagement software solutions.
Management is headed by Chief Executive Officer Natalie Wolfsen, who was previously Head of Marketing at First Eagle Investment Management and Head of Product Management and Development at Pershing.
AssetMark has developed a platform that provides an end-to-end experience through nearly all parts of independent financial advisers' engagement with their clients while enabling the outsourcing of high-cost and specialty services that would otherwise require significant investments of time and money.
Various aspects of an adviser's engagement cycle that the company's platform facilitates include initial client conversation, ongoing financial planning discussions, as well as performance reporting and billing.
Additionally, the company's platform provides advisers with solutions that help them manage and optimize their day-to-day business activities.
According to a 2019 market research report by Grand View Research, the global wealth management software market is projected to reach $5.8 billion by 2025, growing at a CAGR of 15.3% between 2019 and 2025.
The main factor driving market growth is the growing need for digital tools that can automate the wealth management process.
The financial advice and management segment is anticipated to grow at the fastest CAGR of 16.0% during the period due to growing demand for tools to manage finances.
Major competitors that provide or are developing wealth management solutions include:
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Envestnet.
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Fiserv.
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Temenos Headquarters.
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Fidelity National Information Services.
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Profile Software.
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SS&C Technologies.
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SEI Investment.
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Finantix.
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Comarch.
AssetMark's Recent Financial Trends
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Total revenue and Operating income by quarter has risen per the chart below.
Total Revenue and Operating Income (Seeking Alpha)
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Gross profit margin by quarter has trended higher; Selling, G&A expenses as a percentage of total revenue by quarter have varied within a narrow range.
Gross Profit Margin and Selling, G&A % Of Revenue (Seeking Alpha)
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Earnings per share (Diluted) have dipped recently.
Earnings Per Share (Seeking Alpha)
(All data in the above charts is GAAP).
In the past 12 months, AMK's stock price has risen 55.41% vs. that of Envestnet, Inc.'s ( ENV ) growth of 9.61%, as the chart indicates below. The two stocks performed similarly until March 2023 earnings reports for Q4 2022's results, whereafter the stock performance diverged in AMK's favor.
For the balance sheet , the firm ended the quarter with $138.7 million in cash, equivalents and short-term investments and $93.5 million in total debt, none of which was categorized as the current portion due within 12 months.
Over the trailing twelve months, free cash flow was an impressive $151.1 million, during which capital expenditures were only $2.9 million. The company paid $14.6 million in stock-based compensation in the last four quarters, a substantially declining figure over the past eleven quarters.
Valuation And Other Metrics For AssetMark
Below is a table of relevant capitalization and valuation figures for the company.
| Measure [TTM] |
| Amount |
| Enterprise Value / Sales |
| 3.5 |
| Enterprise Value / EBITDA |
| 12.7 |
| Price / Sales |
| 3.5 |
| Revenue Growth Rate |
| 15.5% |
| Net Income Margin |
| 15.2% |
| EBITDA % |
| 27.2% |
| Net Debt To Annual EBITDA |
| -0.3 |
| Market Capitalization |
| $2,250,000,000 |
| Enterprise Value |
| $2,240,000,000 |
| Operating Cash Flow |
| $154,000,000 |
| Earnings Per Share (Fully Diluted) |
| $1.33 |
(Source - Seeking Alpha).
As a reference, a relevant partial public comparable would be Envestnet, Inc.; shown below is a comparison of their primary valuation metrics.
| Metric [TTM] |
| Envestnet |
| AssetMark Holdings |
| Variance |
| Enterprise Value / Sales |
| 3.6 |
| 3.5 |
| -3.6% |
| Enterprise Value / EBITDA |
| 46.7 |
| 12.7 |
| -72.7% |
| Revenue Growth Rate |
| -1.3% |
| 15.5% |
| --% |
| Net Income Margin |
| -8.9% |
| 15.2% |
| --% |
| Operating Cash Flow |
| $80,260,000 |
| $154,000,000 |
| 91.9% |
(Source - Seeking Alpha).
Commentary On AssetMark
In its last earnings call ( Source - Seeking Alpha ), covering Q1 2023's results , management highlighted record revenue growth, with an all-time high of 243,000 households and 9,300 advisors on its platform.
Net inflows have improved despite a recent lull in the metric due to market uncertainty. Advisors haven't been moving toward the platform in late 2022 as they had been previously, but the company saw 166 new producing advisors join in Q1.
Management also plans to launch a rebuilt eWealthManager 3.0 in the second half of 2023, which should help the company increase its "wallet share of existing advisors, attract new producing advisors, and create opportunities to serve new markets, all while we lower the cost to serve."
Notably, leadership is also looking at further acquisitions with its approximately $140 million of "purchasing power."
Total revenue for Q1 2023 grew by 19.1% year-over-year and gross profit margin increased by 4.2%.
Selling, G&A expenses as a percentage of revenue dropped 1.1% year-over-year while operating income increased by a very strong 50.6%.
The company's financial position is strong, with ample liquidity, a small long-term debt load and impressive free cash flow.
Looking ahead, management expects 10% platform asset growth and 20% revenue growth.
From management's most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below.
Earnings Transcript Key Terms Frequency (Seeking Alpha)
I'm most interested in the frequency of potentially negative terms, so management or analyst questions cited 'Uncertain' three times, "Challeng[es][ing]" once, "Drop" one time, and "Volatil[e][ity]" three times.
Analysts questioned company leadership about 2023's outlook, which management characterized as "seeing a lot of movement in our pipeline" as advisors seek to go "on offense" in the current environment since the beginning of 2023.
A potential upside catalyst to the stock could include greater resilience from consumers and a desire to move further into equities as the Federal Reserve begins to taper its rate hikes.
This would result in greater asset additions and perhaps more advisor movement to AMK's platform.
However, economic leading indicators continued to fall in June, according to The Conference Board's index , which matches my pessimism.
So, I'm cautious about the economic outlook and the stock market's direction in the near term.
My outlook on AMK is Neutral [Hold] for the period just ahead.
For further details see:
AssetMark Sees Asset Inflow Improvement But Leading Indicators Are Cloudy