Positive Flows and Market Gains Lift BlackRock's AUM
We expect to increase our fair value estimate for the wide-moat firm.
While there was little in wide-moat BlackRock's (BLK) fourth-quarter earnings to alter our long-term view of the firm, we expect to increase our fair value estimate to $550 per share to account for our expectations for better AUM levels and fees than we had been forecasting for the near to medium term. BlackRock closed out the December quarter with a record $7.430 trillion in managed assets, up 6.7% (24.3%) sequentially (year over year), with both organic growth and market gains contributing to AUM growth during the period. Net long-term inflows of $99.0 ($335.7) billion during the quarter (full year) were fueled by $20.6 ($109.9) billion of active fund flows, $3.2 ($42.3) billion of inflows from the firm's institutional index business and $75.2 ($183.5) billion in inflows from iShares. BlackRock's annual organic growth rate of 6.1% during 2019 was better than both management's ongoing annual organic growth rate target of 5% and our long-term forecast calling for 3%-5% annual organic AUM growth.
Average long-term AUM growth of 4.3% (16.1%) sequentially (annually) during the fourth quarter translated into an 11.2% (1.9%) increase in base fee revenue growth, as the company lapped a really difficult fourth quarter of 2018 (which also suppressed top-line growth the first couple of quarters of 2019). Total revenue was up 15.8% when compared with the prior-year's quarter and increased 2.4% on a full-year basis (better than our forecast calling for flattish revenue growth during 2019--much of which can be tied to stronger performance fee and technology and risk management revenue). As for profitability, BlackRock posted a 20-basis-point (70-basis-point) decline in full-year operating margins (when looked at on an adjusted basis) to 38.2% during 2019. Even so, we continue to project a slight expansion in the firm’s operating margins during 2020-24, driven not only by the increased scale of BlackRock's operations but the efficiencies created by ongoing technology investments.
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Greggory Warren, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.