Virtus Investment Partners’ 2021 EBITDA Estimate Increased to $253 Million; Target Price $159: Morgan Stanley

Virtus Investment Partners Inc’s 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) forecast was increased by 40% to $253 million on the back of strong second-quarter earnings and recently announced a partnership with Allianz Global Investors, said Morgan Stanley analysts, who also upgraded their price target to $159 from $133.

Early this month, Virtus, a financial advisory and consulting firm, which offers mutual, closed-end funds, managed accounts and related services, announced a strategic partnership with Allianz Global Investors (AGI) that will add $24 billion of assets, which is expected to close by year-end.

“Acquisitions in recent years (SGA and Ridgeworth) bolster scale but lack of consistent M&A execution and inconsistent organic growth likely weigh on the valuation multiple Recent partnership with AGI highly accretive and no upfront cash payment minimizes downside risks, but outflows likely worsen the Pro-forma flow trajectory,” Michael J. Cyprys, equity analyst at Morgan Stanley said.

“Top 5 strategies represent 50% of mutual fund AUM. Relatively smaller AUM size at $109 billion (as of June 30, 2020) relative to other multi-affiliate managers. Combined this leaves Virtus prone to concentration risk and outsized exposure to idiosyncratic events. High retail skew (currently 63% of AUM) could mute improving flows given growth challenges in the channel,” Cyprys added.

Five analysts forecast the average price in 12 months at $149.40 with a high forecast of $185.00 and a low forecast of $105.00. The average price target represents a 7.77% increase from the last price of $138.63. From those five, three analysts rated ‘Buy’, two rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

On Monday, Virtus Investment Partners shares closed nearly 4% higher at $138.63, up about 14% so far this year.

Morgan Stanley target price is $219 under a bull scenario and $54 under the worst-case scenario. Several other equity researches have also recently upgraded their stock outlook.

The financial advisory and consulting firm, Virtus Investment Partners, had its price objective upped by analysts at Barclays to $170 from $150. Barclays ‘s target price would indicate a potential upside of 27.08% from the stock’s previous close. Bank of America raised its price target to $154.00 from $140.00 and gave the company a “buy” rating.

“Balanced risk/reward profile (+58% bull/-61% bear) keeps us Equal-weight with $159 price target for +15% upside. PT increase of +20% can be attributed to 40% uplift to EBITDA, partially offset by higher leverage as VRTS is assuming $250 million of contingent liability (based on our assumptions of a purchase multiple 2.75x revenues). Our price target is based on a target multiple of 5.8x EV/2021e EBITDA, which is a slight -3% degradation from 6.0x previously,” Morgan Stanley’s Cyprys added.

“While we view the AGI partnership as meaningfully earnings accretive, we note that outflows from AGI funds (-9% annualized outflow year-to-date and -6% in 2019) are likely to weigh on VRTS’s organic growth trajectory (VRTS inflected strongly to +11% org growth in 2Q20). Further, the acquisition could also accelerate fee rate degradation over time, as AGI funds add to the existing mix. We look for stabilizing/improving outflows as AGI leverages VRTS’s strong U.S. retail distribution to get more positive.”