March 25, 2009 / 12:46 PM / 9 years ago

RPT-UPDATE 2-AGF profit shrinks with economy, loan losses hurt

(Repeats without changes to text or headline)

* Q1 EPS C$0.14 vs year-earlier C$0.70

* Assets under management drop 33.9 pct to C$32.6 billion

* Shares drop 6.2 percent (Adds details, quotes)

By Jennifer Kwan

TORONTO, March 25 (Reuters) - Mutual fund and wealth management company AGF Management Ltd (AGFb.TO) reported a sharp drop in quarterly profit on Wednesday as revenue fell by nearly a third and the results were hit by higher loan loss provisions at its trust unit.

Stock market volatility, the economic slowdown and the reluctance of investors to buy long-term equity funds all weighed on results, Chief Executive Blake Goldring told analysts in a conference call.

“The global economy and the global events of the past year have left no one immune,” he said, adding that AGF is now focused on cutting costs.

AGF, Canada’s third-largest publicly traded fund manager, said its first-quarter profit fell to C$12.2 million ($9.92 million), or 14 Canadian cents a share, in the three months ended Feb. 28, from C$62.7 million, or 70 Canadian cents a share, a year earlier.

Excluding the impact of a C$19.5 million tax reduction, the Toronto-based company said earnings per share were 48 Canadian cents in the year-before quarter.

Analysts had expected a profit of 18 Canadian cents a share before items in the latest quarter, according to Reuters Estimates.

AGF shares were down 51 Canadian cents, or 6.2 percent, at C$7.78 on the Toronto Stock Exchange on Wednesday afternoon.

Higher loan loss provisions at AGF’s trust unit hurt the company’s earnings, said John Aiken, an analyst at Dundee Securities, as did a decline in revenue that outpaced the decline in company expenses.

“With the decline in their assets under management they’re having to absorb more expenses from the fund in order to keep the management expense ratios competitive,” he said.

Following the results, Aiken reduced his rating on AGF shares to “neutral” from “buy” and cut his price target on AGF shares to C$8.00 from C$8.50.

Credit deterioration within the trust operations will likely remain the key issue for AGF’s valuation, he wrote in a research note. However, he noted that value remains in the dividend and its roughly 12 percent yield.

For the quarter, AGF’s total consolidated revenue fell 29 percent to C$138 million — slightly above the Reuters Estimates forecast of C$134.37 million — from C$194.3 million a year earlier.

Total selling, general and administrative costs fell 5.4 percent in the quarter.

Total assets under management dropped 33.9 percent to C$32.6 billion as of Feb. 28, down from C$49.3 billion a year earlier, as volatility rattled global markets.

At its trust unit, the company said its total loan loss provisions were C$11.5 million in the quarter, up from C$3.1 million.

$1=$1.23 Canadian Reporting by Jennifer Kwan; Editing by Peter Galloway

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