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AGF results get lukewarm response from analysts

AGF Management Ltd. CEO Blake Goldring

AGF Management Ltd’s latest earnings results showed more improvement in the level of net redemptions at the beleaguered mutual fund giant, but nonetheless not enough to reproduce much investor confidence in the stock’s prospects moving forward.

“We have lowered our valuation multiples to reflect the challenges of AGF\’s current environment,” said GMP Securities analyst Stephen Boland inside a note to clients that maintained his hold rating but reduced his price target to $8 from $8.50.

“Although the trend is improving, we continue to see net redemptions of retail assets (and) regulatory uncertainty around trailer fees provides additional risk.”

AGF reported the 2009 week it earned an operating EPS of 17 cents in the second quarter, matching the typical analyst estimate.

Mutual fund redemptions at the asset manager fell to $406-million from $507 million last year, while? institutional net sales were $23 million compared to net redemptions of $331 million within the preceding quarter.

Shubha Khan, analyst at National Bank Financial, reiterated his sector perform recommendation following a results, but additionally reduced his price target on the stock, lowering it to $7 from $7.50.

He said AGF expects to lose a low-fee $600-million sub-advisory mandate within the third quarter and warned of new Canada Revenue Agency reviews facing the company, which could result in $64 million of potential income tax payable.

“Although we expect moderating net redemptions to ultimately drive a re-rating of the shares, execution risk, regulatory overhang, and material downside risk from CRA reviews will continue to weigh on valuation,” he said in a note.