Azimut, the reasons behind the stock market collapse

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What I know about financial markets and the economy I learned by working for one of the main stock exchanges on Piazza Affari, the companies that buy and sell securities on the stock exchange for large investors. I took it with me when I became a journalist for La Repubblica where, among other things, I covered investigations and major scandals such as that of Parmalat, helping to unmask its false financial statements. Every Wednesday we will talk about listed and unlisted companies, personalities, institutions, scandals and investigations linked to this world. If you want to write to me, my email is [email protected]. Enjoy the reading

Walter Galbiati, deputy director of Repubblica

The resounding collapse of Tim on the stock market which began last week and continued in recent days after the announcement of the strategic plan, has partially overshadowed another collapse, that of Azimuththe independent asset management company led by Pietro Giuliani. On the day of the announcement of its results for the year 2023, the stock closed trading with a 5% dropa decline not yet reversed, but confirmed this week in the continuation of prices.

Stock market performance. The stock went from the highs of the year recorded on Wednesday 6 March to 27.3 euros to 23.79 touched upon during last Friday’s session. And now it fluctuates around 24 euros. The company had risen significantly starting from October 2023 when it traded below 20 euros, because it had benefited from the rumors on the stock exchange that saw it as a possible prey to Unicreditthe bank led by Andrea Orcel looking for a profitable way to use its excess liquidity.

Quarterly results. Last Friday, on the occasion of the annual data, Azimut shares collapsed, despite having exceeded the targets that the company had set itself. It has to be done though a premise: when financial results are published, investors look more at the numbers for the last quarter than for the whole year, because they are the most recent and give a better picture of where the group is going. And Azimut’s fourth quarter was not convincing. I am there were three reasons that triggered the sales.

A profit lower than expected. Although 2023 net profit exceeded the expected target, the fourth quarter result was below expectations. The group closed with consolidated profits of 94 million euros up from 85.4 million the previous year, but a good 15% below the analysts’ consensus. The cause was an accounting standard, IFRS 17, which came into force at the beginning of 2023 and which required a negative adjustment of 11 million euros on the accounts. But even if this item had not been present, the result would still have been 4% lower than expected.

More profits from disposals. The market didn’t even like that the results benefited mostly from the realization on investments of properties went from a negative balance of 15 million last year to a collection of 37 million euros, when performance fees instead fell from 50 million to 36 million. Furthermore, these are commissions made in countries such as Italy, Turkey and Brazil where taxes are higher, a mix that has led the group’s tax rate to rise.

The dividend. The biggest disappointment, however, concerns the dividend. Azimut has confirmed that it will pay a coupon of 22 May 1.4 euros per sharebut of these only one euro will be paid in cash. The rest will be remunerated with over 2 million Azimut shares, calculated based on the closing price on March 6th. This is a total disbursement between shares and securities 194 millionof which around 140 million in cash, for a payoutor the ratio between dividend and profits, by 50%. A figure, the latter, which was disappointing because it is placed in the low range compared to the range between 50 and 70% promised by Azimut.

But why did Azimut want to save on cash? One of the reasons given is the need to repay without resorting to refinancing on the market 500 million euro bond which will expire next December. Issuing another bond could be very expensive because currently the rate that Azimut pays on the current bond is1.625%a rate that it would be difficult to achieve today after the increases in the cost of money wanted by the ECB.

The accounts in your pocket. The group has some cash on hand, because at the end of December it boasted one positive net financial position of 392 million euros. Part of this will be used in May to pay the dividend (less than the market expected), while another part, excluding that which will be used to fuel the business, will contribute to the repayment of the bond. But it won’t be enough, so much so that Azimut hinted in the conference call with shareholders that it will resort to some divestmentsprobably abroad, to make up what is missing.

The escape of the consultants. However, there is another reason that pushed Azimut not to pay the entire dividend in cash. There are many among the main shareholders of the group financial advisors who work in the Azimut network. Paying them in shares is a sort of encouragement to tie them to the company, also because the group has suffered and is suffering a major hemorrhage in its commercial network. In the North East many Azimut consultants have recently switched to the competitor Banca Patrimoni of the Sella groupbehind the promise of greater compensation, and the same situation could also occur in the North West.

The remedies. Losing promoters means losing customers and assets under management and Azimut has put in place a plan to take action a convention in April in which most likely, also drawing on undistributed liquidity for dividends, it will announce some form of incentive for its consultantsi, many of whom last year had to give up their bonuses with great dissatisfaction for not having reached the collection targets.

Transparency on numbers. These difficulties also emerge from a careful reading of the numbers, especially the Italian ones. In the document in which the group explains the results of the year, on page 8 the Italian masses they are growing dates from 46.1 billion to 48.2 billiona number that does not match what is reported in other parts of the presentation because if, as it says on page 5, the average performance in 2023 was 5.43% which out of 46.1 billion is equivalent to an increase of 2.5 billion, and as it says on page 7 the collection was 1 billion, adding these two numbers (2.5 and 1 billion) to the previous 46.1 billion we arrive not at 48.2 but at 49.6 billion. One wonders where the error lies, where did 1.4 billion disappear? Also because Azimut is no longer part of Assoretithe association of investment consultancy companies that publishes and certifies collection data.

Illiquid investments. Then there is another number that must be looked at carefully and concerns the percentage of illiquid investments in the Azimut customer portfolio. These are products, such as investments in private equity funds, which guarantee excellent returns and good commissions, and are therefore well-regarded by a company that wants to push returns.

Yet it is about very risky products because they are not very liquid and therefore difficult to sell on the market in case of need. Azimut has pushed hard in this sector, even today it accounts for 13% of the overall portfolio when on average these products at other competitors they usually do not go beyond 1 or 2%.

In conclusion. To restart the stock, we therefore need greater clarity on the balance sheet numbers and a strengthening of the network, the true driving force of the companies that manage savings.