BlackRock Sees Investors Taking Risk Off Table
It was a solid quarter from the asset manager, and the company is well positioned despite some institutional outflows from riskier asset classes.
There was little in wide-moat-rated BlackRock's (BLK) third-quarter earnings that would alter our long-term view of the company. We are leaving our $580 fair value estimate in place. BlackRock closed the September quarter with a record $6.444 trillion in managed assets, up 2.3% sequentially and 7.8% year over year, with positive flows, market gains, and the inclusion of the assets under management from the acquisitions of Tennenbaum Capital Partners and the asset-management business of Citibanamex offset by adverse currency exchange during the period.
Net long-term inflows of $10.6 billion during the third quarter were a step down from the positive $67.8 billion quarterly run rate we'd seen from BlackRock during the prior eight calendar quarters but was not out of character with what has been reported so far from other asset managers. It appears that the industrywide slowdown in flows we saw during the second quarter crept into the third quarter as investors continued to derisk portfolios, with BlackRock in particular reporting $30.7 billion in institutional equity index outflows as a result of increased uncertainty about global monetary policy and trade. The company also noted that it experienced large outflows ahead of and during last week's equity market sell-off, which will probably blunt our full-year organic growth forecast down to 2%-3% (from 3%-4% previously).
BlackRock turned year-over-year average long-term AUM growth of 9.5% into 3.7% base fee revenue growth during the third quarter, as mix shift and fee compression weighed on results. Total revenue was up 1.9% (9.4%) compared with the third quarter (first half) of 2017, leaving the company well positioned to generate mid- to high-single-digit top-line growth for the full year. BlackRock posted an 80-basis-point increase in year-to-date operating margins to 39.1% when compared with the year-ago period, at the lower end of our 39%-40% full-year target.
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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.