NEW BUY: Silvercrest [SAMG] @ 18% FCF & 5% Div Yield, 6.7x P/E, Strong EPS & AUM Growth - Initiation Report

NEW BUY:   Silvercrest Asset Management Group [SAMG: $12.12, $178 million market cap] represents a unique mix of solid growth, high value-added investment performance, a huge FCF and impressive dividend yield, and strong management.  Trading at extreme “deep value” multiples, the stock is still relatively undiscovered and undervalued.  Evaluate Research is currently the only firm whose research reports/estimates on SAMG are now available without cost to all investors. 

We initiate coverage with an $18.00 price target, implying over 50% total return potential, supported by multiple metrics and detailed industry peer analysis.  The steep 5.2% dividend rewards patient investors, and with robust FCF and net cash on the BS of $3.51 per share [or 29% of the current stock price based on our 2020 estimate], the downside appears limited, in our view.  

Our multiple recent conversations with management suggests they are optimistic about future growth once the near-term coronavirus disruptions subside.  The key tenets of our investment thesis include:

• AUM Growth:   As of December 31, 2019, AUM growth of 32% CAGR since its inception in 2002 through year-end 2019, with some of the fastest growth in the last five years, and +32% in 2019.  98% client retention historically.
• Revenue and EPS growth:  6-year 8.0% revenue and 16.7% reported net income CAGR.
• Solid Q2 results:   SAMG reported revenues and EPS both above our expectations; with strong asset growth, significant inflows from new client additions and continued above-benchmark investment performance.
• FCF and Dividend Yield:   13% FCF yield [18% FCF yield on EV], and a 5.2% dividend yield on modest EPS/FCF payout ratios.
• Deep Value Metrics:   9.5x P/E [6.7x ex-cash], 5.0x EV/EBITDA, and 29% net cash/market cap all on our 2020 estimates.  We have been focusing on “deep value” stocks on a global basis for over a decade now; any of these metrics are in extreme undervaluation territory. 
• Strong Management, Insider Buying: ~40% insider ownership, many of principals worked together for 23 years or more, recent insider buying at current price levels.

Our $18.00 target, which would suggest over 50% total return [and would simply take the stock back close to prior highs of over $17.00 achieved in mid-2018], would imply a P/E of 13.9x [ex-cash P/E of a modest 11.2x], an extremely attractive 8.6% FCF yield [and 10.6% FCF yield on EV], a 3.6% dividend yield, and a 7.5x EV/EBITDA, all based on our current year 2020 estimates.  Assuming our $18.00 price target, all these metrics are reasonable in our view, and we compare these target price multiples with a range of large-cap and small-cap peer group companies in detail below. 

The Evaluate team has decades of experience identifying high quality value stocks.  We believe SAMG offers compelling metrics from a deep value perspective.  SAMG is quite undervalued on today’s stock price using trailing metrics.  SAMG, at today’s stock price, is trading at just 8.3x P/E [5.1x ex-cash], a 16.5% FCF yield [25.5% FCF yield on EV], and a 3.9x EV/EBITDA, all based on our 2021 estimates.  In our view, these metrics indicate SAMG is extremely undervalued.

Please see our 45-page Initiation Report attached…