AllianceBernstein Thriving On AUM Growth And Mix

 

In a healthy market for asset managers, AllianceBernstein (AB), continues to stand out in a positive way, with a better than 35% total return since my last update that compares pretty well to peers like Artisan (APAM), BlackRock (BLK), Franklin Resources (BEN), and T. Rowe Price (TROW). This solid performance has not only been driven by a generally cooperative market, but also AB’s own strategies to drive growth in assets under management (or AUM) and improve the fee mix.

I really don’t see a reason to get off this strong horse at this point. While the valuation isn’t quite the bargain it once was, I still see the prospect of double-digit total annualized long-term returns here, and I think there’s more AB can do to grow the business. Management has been actively remixing AUM toward active equity and alts, and I believe there’s more to come both organically and through M&A.

 

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AllianceBernstein Thriving On AUM Growth And Mix

Healthy Flows And Good Expense Management Continue To Drive AllianceBernstein

I can't really complain about how AllianceBernstein Holding LP (AB) has continued to perform. Up more than a third from my last article, management continues to do a good job of delivering on goals like improved expense management, expanded product offerings, and AUM growth. For the full year, AB's total return more than doubled the performance of the average asset manager, and the performance over the last three and five years has likewise been strong as operations have turned around.

I still like this business, even though ongoing pressure on management fees makes it a tough sector in which to compete. Fund performance remains one of my biggest concerns, as I believe asset managers will have to increasingly justify their fee structures to clients, but equity performance has been good, and I like the efforts to expand the alternative investment offerings. With a revised fair value in the low-to-mid $40s, I still like these shares.

 

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Healthy Flows And Good Expense Management Continue To Drive AllianceBernstein

AllianceBernstein Continuing To Out-Execute Its Peers, But Not Fully Rewarded For It

Asset manager AllianceBernstein Holding L.P. (AB) has always required an above-average level of patience, and it doesn’t help that the company’s legal structure limits institutional ownership and can create headaches for individual investors. That said, for investors who can be bothered to deal with the higher level of complexity (which, depending upon your specific circumstances may not be that significant), I continue to believe that AB is worth a look, as management has established what I believe to be a differentiated strategy that can continue to drive above-average inflows, revenues, profits, and distributions.

Market risk is always a concern – whatever can undermine assets under management can undermine revenue, profits, and distributions. Likewise, execution and performance remain risks, as money continues to flow from active to passive, there’s an even greater need to generate strong results from actively-managed funds. AB is doing this, and I think the shares remain undervalued below the mid-$30’s.

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AllianceBernstein Continuing To Out-Execute Its Peers, But Not Fully Rewarded For It

AllianceBernstein Seeing Short-Term Pain, But The Long-Term Plan Intact

The first quarter of 2019 wasn’t a particularly easy one for asset managers, AllianceBernstein Holding L.P. (AB) included, and this asset manager’s roughly 3% decline since my last update puts on the slightly below-average end of the scale over that period, though it remains one of the leaders in its peer group over the past year (a period in which many rivals are down 10% or more).

First quarter results weren’t great in absolute terms, nor relative to expectations, but long-term trends remain positive, as AB continues to see strong retail inflows, healthy fees, and good performance. While weaker markets are pushing back the 30% operating margin goal, I believe the underlying fundamentals are still healthy, and I believe these shares are attractively-priced below $30 for investors who want a more income-skewed total return.

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AllianceBernstein Seeing Short-Term Pain, But The Long-Term Plan Intact

AllianceBernstein Executing Well, But Operating Conditions Are Increasingly Challenging

AllianceBernstein (AB) has been my favorite asset manager for some time now and the recent performance trends (both company-specific financials and stock market) have done nothing to shake my preference – AB has strongly outperformed peers/rivals like Invesco (IVZ), Franklin Resources (BEN), BlackRock (BLK), Cohen & Steers (CNS), Waddell & Reed (WDR), Janus Henderson (JHG), BrightSphere (BSIG), Eaton Vance (EV), and Legg Mason (LM) over the past two years, outperformed all of those and T.Rowe Price (TROW) over the past year, and outperformed most of those since my last update in September.

This current year is shaping up to be a more challenging one for the entire space, as market-driven AUM declines undermine the fee base and jittery investors may well pull more funds from the market. In the case of AB, though, the company has continued to outperform with respect to fund flows and I see more long-term potential from operating leverage, even if the next year or two do see a step down in keeping with the broader sector challenges. Although AB shares aren’t appropriate for all investors or portfolios (consult with a tax professional on this), I believe the shares remain undervalued enough to be worth considering, particularly if you want a more income-skewed return profile.

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AllianceBernstein Executing Well, But Operating Conditions Are Increasingly Challenging

Steady As She Goes For AllianceBernstein

A key part of the AllianceBernstein Holding LP (AB) story, and one that I've been saying for a while has been undervalued by the market, is the extent to which the company can unlock the benefits of prior investments in distribution platforms to generate better margins on rising AUMs. That story continues to work out, helping drive these units about 25% higher over the past year and 10% higher since my last update, all while paying an attractive tax-advantaged distribution.

I continue to believe that AllianceBernstein is a worthwhile holding to consider for investors who want a return story that skews toward the income side (and for whom an LP makes sense). The improvements in the company's equity funds is driving better asset growth and the company's overall strategy to drive more retail AUM still has room to run. Meanwhile, the expense benefits of shifting back-office operations out of New York City won't really show for several years, and can drive another leg of margin improvement. With a fair value in the low-to-mid $30s, I believe these shares continue to hold appeal for those willing and able to own an LP.

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Steady As She Goes For AllianceBernstein

AllianceBernstein Reaping The Benefits Of Past Decisions

I'm pleased with how AllianceBernstein Holding L.P. (AB) continues to perform. The units are up around 10% from when I last wrote about this company, the yield remains quite attractive, and better still the company is reporting improved revenue and profitability as decisions made years ago by prior management start to pay off for the company.

AllianceBernstein isn't, and never will be, suitable for everybody. AXA (OTCQX:AXAHY) owns a majority stake of the business and regular unitholders have virtually no say in the operation of the business. Moreover, the distributions from partnerships like this can have more complicated tax treatment than regular dividends. Even so, I believe AllianceBernstein is well-placed to continue bringing in assets under management and leveraging its existing infrastructure to generate higher margins and higher distributions for unitholders.

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AllianceBernstein Reaping The Benefits Of Past Decisions

AllianceBernstein's Unsteady Progress Continues To Cap The Valuation

AllianceBernstein Holding LP (AB), the asset manager that is majority-owned by AXA SA (OTCQX:AXAHY), still just can’t get a lot of love on the Street. Although the company has continued to build its assets under management and margins are improving, progress has been inconsistent and AXA likely rattled investors with a major management shake-up earlier this year. AllianceBernstein continues to make progress in areas like its equity fund performance, but investors still seem reluctant to believe that the company can rebuild itself back into a leading money manager.

Even with a longer, slower ramp toward higher margins, AB units still look undervalued to me and they continue to offer a high yield (over 8% as of this writing). I understand that partnerships aren’t for everyone and the influence/control of AXA is another valid issue, but the shares continue to look undervalued to me for patient income-oriented investors.

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AllianceBernstein's Unsteady Progress Continues To Cap The Valuation

Seeking Alpha: AXA Needs To Unlock Growth To Achieve A Higher Share Price

French insurance giant AXA (OTCQX:AXAHY) has been doing what it said it would, but investors have been slow to reward the company for its progress. The shares are down about 3% from my last update, which is better than the performance of peers like Generali (OTC:ARZGF), Aviva (NYSE:AV), and Zurich (OTCQX:ZURVY), and a little worse than Allianz (OTCQX:AZSEY), but investors shouldn't shoot for "no worse than the others" with their investments.

Management has done a good job of reducing expenses and boosting cash flow, and the company's relatively solid Solvency II score is encouraging for further capital distributions to shareholders. On the other hand, high-growth markets like Turkey haven't delivered the hoped-for growth, P&C premium growth has proven challenging, and inflows to both the life and asset management businesses aren't as strong as they need to be.

A key consideration, then, is whether AXA can take the steps necessary to accelerate bottom line growth from the 2% to 3% rate seen in 2015. Today's price is fair if the 10-year adjusted earnings growth averages around 3%. A growth rate of 4% bumps the fair value to $26.50 and a little over 5% a year in adjusted earnings growth supports a target close to $29.50. I believe 5% is attainable, but far from certain, so this isn't a money-for-nothing sort of investment prospect.

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AXA Needs To Unlock Growth To Achieve A Higher Share Price

Seeking Alpha: Market Headwinds Slow The Progress At AllianceBernstein

There's a good potential turnaround story at AllianceBernstein L.P. (NYSE:AB), but it is going to take a cooperative market environment and that hasn't been the case lately. The shares have taken a dive since my last update, along with peers like Franklin Resources (NYSE:BEN), Invesco (NYSE:IVZ), Legg Mason (NYSE:LM), and Janus (NYSE:JNS), as market conditions have made it noticeably harder to gather and retain the assets under management (AUM) that fuels the fee-generating model.

AllianceBernstein hasn't made the progress with AUM accumulation or margins that I had hoped for a year ago, but there's still upside here. If management can leverage relatively good actively-managed fund performance into improved AUM, margin leverage could be significant. That said, investors can't afford not to consider the risks that the margin leverage fails to materialize and the company never truly manages to harmonize the Alliance and Bernstein businesses. I still believe that a fair value in the mid-to-high $20s is in play, along with a rich tax-advantaged distribution, but asset managers need relatively healthy markets to make headway.

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Market Headwinds Slow The Progress At AllianceBernstein

Seeking Alpha: AXA On The Right Track

When can a call be both right and wrong? When a significant move in foreign currency saps the strong performance of a company's shares on its home exchange and the ADR goes more or less nowhere. That is what has happened with AXA (OTCQX:AXAHY), as the shares of this global insurance giant have done quite well on the local market (up more than 25% since my last article) and better than peers/rivals like Allianz (OTCQX:AZSEY), Generali (OTCPK:ARZGY), Prudential Plc (NYSE:PUK), and Aviva (NYSE:AV), but the ADRs are basically flat after the significant move in the U.S. dollar-Euro exchange rate.

AXA is executing to plan and there is a lot to like about the company's operations. The company is successfully replacing risky (for them), capital-intensive products with profitable, less capital-intensive products and the company's P&C operations are doing well. The company's significant exposure to Asia is also helping, as these operations are contributing significant growth.

At current exchanges rates these shares look like an okay holding. The ADRs do look undervalued and the company pays a good dividend that is likely to increase in the coming years. If the dollar were to weaken, investors could recapture some of that "lost" performance but that is an inherently unpredictable call.

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AXA On The Right Track

Seeking Alpha: Forget Turning Around, AllianceBernstein Is Growing

Turnarounds can be powerful drivers for higher stock prices, but the real winners are the companies that not only pull out of the dive but actually start gaining altitude again. I think AllianceBernstein (NYSE:AB) very much belongs in that group, as the company has being doing a good job of driving improved asset flows and generating better margins from its cost base. Better still, management is thinking growth again (and delivering), with expanding platforms in index, asset allocation, and alternative investments offering more margin leverage as the flows materialize.

AllianceBernstein shares are up about 20% from when I last wrote, doing better than rivals like Invesco (NYSE:IVZ), BlackRock (NYSE:BLK), Franklin Resources (NYSE:BEN), and Legg Mason (NYSE:LM) before considering the significant yield here. I think that AB has a good chance of generating 10% annualized earnings growth between 2014 and 2019, and discounting that back gives me a fair value of about $34.50 today.

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Forget Turning Around, AllianceBernstein Is Growing

Seeking Alpha: AllianceBernstein Looking Stronger, With More To Come

I kinda/sorta liked AllianceBernstein Holding LP (NYSE:AB) at the start of this year, thinking that investors could collect a solid tax-advantaged yield while waiting to see if management's turnaround and self-improvement efforts would really lead to better results. I won't pretend, then, that I saw the 20% year-to-date move coming, nor the significant improvements in fund inflows.

That's what has come to pass, though, and now I find myself seriously rethinking what AllianceBernstein's earnings progression can look like with lower legacy attrition, solid inflows, and significant operating leverage. I'm concerned that I may be overcorrecting because of just a couple of good quarters, but I'm starting to think that a high-$20s to low $30s fair value may not be so ridiculous, though the risks of a sharp market correction and/or higher rates are quite real.

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AllianceBernstein Looking Stronger, With More To Come

Seeking Alpha: AllianceBernstein Paying Investors To Wait For A Turnaround

About the only positive thing you can easily say about AllianceBernstein Holding LP (AB) is that this limited partnership pays out a large portion of its earnings as a distribution to unitholders - not that management has any choice, given the rules that govern the taxation of limited partnerships. To be sure, AllianceBernstein doesn't immediately leap out as a great play on the investment management industry, given the company's troubles growing assets under management and maintaining a consistent payout.

Management does not seem to be kidding itself about the need to change and improve performance. Better integration between Alliance and Bernstein, as well as the addition of W.P. Stewart gives hope for better results in equity investments, and a greater focus on costs could lead to impressive earnings growth if better investment results can draw in more AUM. With a fair value in the range of $22 to $23, I don't think AB shares are all that cheap, but a 7% yield holds some appeal.

As is the case with all limited partnerships, the taxation of these investments is different than for normal equities and not appropriate for all investors/accounts. Look into the tax ramifications of owning units in a partnership like AB before investing.

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AllianceBernstein Paying Investors To Wait For A Turnaround

Investopedia: AllianceBernstein Could Be Looking At A Long Turnaround

Reputation is a critical asset for asset management companies, and a few years of bad performance can take a very long time to reverse. That's one of the key challenges for AllianceBernstein Holding L.P. (NYSE:AB), as this partnership is seeing ongoing outflows fueled by underwhelming fund performance. While these shares do offer a high yield and performance could improve if higher rates drive investors back into equity funds, the poor performance and rankings of the company's funds will likely weigh on results for some time.

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