Why Azimut Dividend (OTCMKTS:AZIHF) Is Trusted

Azimut Holding (OTCPK:AZIHF) is one of the largest asset managers in Italy and is the largest of the independent managers (ie not directly linked to a bank). Over the years, the company has been able to grow its reputation and expand reaches outside Italy, reporting growing assets under management, growing revenues and high operating margins (+44%). Its balance sheet, as we shall see, can rightly be considered robust, making it a reliable dividend payer as well.

Alpha-seeking readers may know that I am bullish on Italian asset managers for several reasons that I have shared and want to summarize here. The main reason is simple: Italians are world-renowned savers. This in itself does not mean that asset managers will do well. It all depends on what these economists want to do with their liquidity. The high inflation we have witnessed For several years, Western countries have made many people reconsider their cash position and choose a form of investment that aims, at least, to preserve value against inflation. This is why we have seen many asset managers with positive overall inflows over the years. Moreover, a bullish market is always favorable for asset managers, not only because their assets under management (AUM) increase, but also because people are more inclined to invest during bull markets.

The company recently updated its Investor Presentation after reporting H1 2024 results. Let’s take a look next and see how Azimut is performing after the stock has rebounded over 12% since my first neutral rating on Seeking Alpha .

Azimuth at a glance

Let’s review the updated presentation and take a quick look at the company’s footprint and activities. It currently manages over €100 billion, most of which is in the public markets. It employs 1,700 people worldwide and has more than 820,000 investors globally. Most of its growth outside Italy has been through mergers and acquisitions.

A particular aspect of Azimut is its shareholder base. While 75% of Azimut’s shares are free, 22% are owned by individual shareholders working for Azimut (financial advisors, employees, managers) bound by a long-term agreement. This ensures a strong alignment of interests between internal shareholders and investors. In the first three years, 75% of the shares are blocked, in the next three years the percentage drops to 66%. After nine years, there is still 25% of blocked shares. This promotes stability in Azimut’s shareholder base.

Azimut has been able to grow internationally and now sees its AUM split equally between Italy and the rest of the world, with the US, Australia, Brazil and Turkey being the four largest countries outside of Italy.

As I quickly said in the introduction to the article, Azimut is currently seeing a trend where clients are reducing their cash exposure and turning to fixed income solutions to fight inflation.

Azimut’s funding

Azimut’s revenue at the end of the first half of 2024 was EUR 702 million, up 9% from last year. Operating profit also increased by 9% to EUR 312 million, with an operating margin stable at 44.4%.

The company has about €500 million in total debt, while it has more than €1.1 billion in cash and cash equivalents. The net financial position is then over 600 million euros. This year, thanks to the divestment of a 20% stake in Kennedy Lewis, the company also reported gross revenues of €206 million from €54 million invested. It is the first divestment since the establishment of its private equity division.

Thanks to these strong results, the company paid €160 million in ordinary dividends and an additional €0.39 per share paid in treasury shares, for a total of €1.40 per share (a yield of 6.4% ).

One of the most important improvements of Azimut concerns the quality of its gains over time. In 2022, in fact, the company adopted a new fee structure where performance fees become only a minor contributor to revenue. While this may not benefit Azimut’s customers, it certainly helps Azimut financially. As we can see, Azimut’s total revenue is now 97% recurring.

In addition, recurring margins improved year-on-year, boosting Azimut’s profitability.

This affects the dividend, making it even more sustainable and predictable, as we can see from the bar chart below.

For FY2024, the company looks on track to hit its targets: a net profit of €500 million and a net flow target of over €7 billion. The company, in fact, reported net profit of 330 million euros for the first half and smashed its net inflow target for the year by reporting 10 billion euros in the first six months of the year. This means we should see the company report net profits close to €600m, given that €100m should be the net capital gain from the disposal of Kennedy Lewis. This is important for dividend investors because Azimut has a dividend policy that aims to pay out 50% to 70% of recurring net profit. The likelihood of a dividend of over €1.40 to be paid in May in fiscal year 2025 looks high now.

Now, during the earnings call, Azimut’s management made it clear that the next step for the company is to start the project called “New Bank” to start taking deposits on behalf of third-party banks. There is also talk of listing the New Bank after the launch of the project. This will be something we’ll have to monitor as it unfolds, but it can certainly be a nice addition for Azimut’s customers and the company itself.

ASSESSMENT

Azimut is profitable and in good shape. No doubt about it. It is also a steady dividend payer (although it does pay its dividend once a year). My main concern has to do with international expansion. M&A deals are always two-sided and can backfire, especially in the wealth advisory industry, where trust and client networks are two key aspects that are difficult to monitor outside of the geographic area of ​​competence. So far, Azimut has performed well, but the risk remains.

In March, Azimut was trading around €25 per share and we considered it to be fairly valued based on a fwd P/E of 8.5. More or less, I consider Azimut’s straight multiple at 9x, slightly lower than Amundi’s (OTC:AMDUF). Now that the stock is back below €22, I think we could be close to buying. Personally, I usually buy some shares below €20 and then sell them at €25 or more. As Azimut’s financials are improving, €22 may already be worth a little, but a 10% drop (especially in September, which is historically a bad month for the market) could come and be welcomed by investors who, like me, waiting to add Azimut to their portfolio.

Editor’s Note: This article discusses one or more securities that are not traded on a major US exchange. Please be aware of the risks associated with these stocks.