This week, we saw the return of many familiar names to our list of notable insider purchases, and given that we’ve written about these companies numerous times in the past, we decided to focus on a newcomer to our list, Victory Capital Holdings (VCTR). Victory Capital Holdings became an independent global asset management firm through a management-led buyout from KeyCorp (KEY), a bank-based financial services company. As of November 2022, Victory Capital has $157.1 billion in assets under management – an increase when compared to the previous month’s number of $150.5 billion.
Asset management companies, especially those focused on mutual funds, have had a difficult time growing assets in a competitive environment that favors ETFs and alternative asset classes. Growth is often driven by consolidation and Victory Capital has been growing through acquisitions for several years. The company’s funds have also been outperforming their benchmarks as you can see from the following slide from their Q3 2022 earnings presentation.
While Victory Capital has seen an understandable drop in the stock price over the past year due to the ongoing bear market, it has still managed to grow its revenue year-over-year by 2.42%, a significant number when competitors such as Franklin Resources (BEN) and Janus Henderson Group (JHG) have seen negative revenue growth. Furthermore, Victory Capital managed to grow its revenue by over 20% in the last three years, whereas Franklin Resources and Janus Henderson Group grew by around 13% and 4% respectively in the comparable time period. Victory Capital is also an incredibly efficient company, with a gross profit margin of 54.52% and a net income margin of 33.20%. As revenue grew, gross profit, operating income, and net income all also grew and despite revenue slightly declining in the last twelve months, gross profit and net income both managed to grow.
A comparable metric to look at is the acquisition of Legg Mason by Franklin Resources (BEN) in 2020, in which Franklin Resources paid $6.5 billion to purchase the company including around $2 billion in debt. According to the last 10-K filed by Legg Mason before its acquisition, they had operating revenue of $2.92 billion in fiscal 2020, ended March 31, 2020. This means that Franklin Resources acquired Legg Mason for around 2.2 times operating revenue. Revenue in 2020 was up just a little from $2.9 billion in 2019 and down from $3.14 billion in 2018.
Victory Capital currently has an operating revenue of $882.4 million (TTM) and an enterprise value of $2.77 billion, meaning it trades at around 3 times operating revenue – a small premium when compared to what Legg Mason was acquired for. Victory is trading at a premium because of its rapid growth over the last several years.