Company Reports

There was little in narrow-moat Invesco's first-quarter results that would alter our long-term view of the firm. We are leaving our $17 per share fair value estimate in place and view the company's shares as being modestly undervalued relative to the April 23 trading price.

For a long time, Invesco was a top pick for us among the traditional US-based asset managers we cover, having generated solid organic growth in its long-term assets under management (1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability (primarily because of the costs associated with its more retail-centric distribution platform).

All the US-based asset managers we cover have reported their December-quarter earnings, and in some cases revealed assets under management, or AUM, data for January 2024. We now have a better sense of how recent market activity has been affecting results. In our third-quarter earnings wrap, we had assumed that the malaise that had crept into the markets during August-October 2023 might continue through the rest of the year.

We've increased our fair value estimate for narrow-moat-rated Invesco to $17 per share from $15 to account for revised near-term expectations for assets under management, revenue, and profitability since our last update. With the U.S. equity markets rising 12% in the fourth quarter of 2023, and the credit markets rising 7%, Invesco had a 7% increase in its AUM during the period. This left the firm in a better position than we had been expecting coming into 2024, allowing us to raise our fair value estimate more than 10%.

For a long time, Invesco was a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic growth in assets under management (1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability (primarily because of the costs associated with its more retail-centric distribution platform).

While there was little in narrow-moat Invesco's fourth-quarter results that would alter our long-term view of the firm, we expect to increase our $15 per-share fair value estimate slightly once we've incorporated the results into our valuation. This would leave the company's shares fairly valued relative to the Jan. 23 trading price.

While the runup in the equity markets the past several weeks is likely to have a positive impact on assets under management for the U.S.-based asset managers, we don't expect it to have too significant an impact on our fair value estimates, which are based on 10-year forecasts for AUM growth, fee rates, revenue, and profitability. As of the Nov. 29 market close, the traditional U.S.-based asset managers we cover were trading at an average price/fair value multiple of 0.97, making them only slightly undervalued, while the alternative-asset managers we cover were trading at an average price/fair value multiple of 1.09. This is far from the margin of safety we would need to recommend these more volatile names to long-term investors.

With all the U.S.-based asset managers we cover having reported quarterly earnings, and in some cases revealing assets under management data for October, we have a better sense of how the ongoing equity and credit market volatility is affecting results. Due to their lack of organic AUM growth—a product of having large exposure to higher-cost, poorer-performing active equity products in a market where low-cost passive products are preferred—most of the traditional U.S.-based asset managers have become dependent on equity market gains to expand their AUM. In an environment where fees are under pressure and profit margins are being affected by a need to spend more to maintain (if not improve) performance and enhance distribution, a precipitous decline in managed assets, like we saw during 2022, has a large negative impact on revenue and profitability, given the amount of operating leverage inherent in the asset manager business model.

For a long time, Invesco was a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic growth in assets under management (1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability (primarily because of the costs associated with its more retail-centric distribution platform).

While there was little in narrow-moat-rated Invesco's third-quarter results that would alter our long-term view of the firm, we expect to reduce our $16 fair value estimate slightly once we've incorporated the results into our valuation. We view the shares as being modestly undervalued.

We've lowered our fair value estimate for narrow-moat Invesco to $16 per share from $18 to account for revised near-term expectations about assets under management, revenue, and profitability since our last update. While we view the shares as being modestly undervalued, we see better options in the traditional asset management space—like wide-moat BlackRock—for long-term investors.

For a long time Invesco was a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic growth in assets under management (1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability (primarily because of the costs associated with its more retail-centric distribution platform).

Invesco was for a long time a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic growth in assets under management (1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability, primarily because of the costs associated with its more retail-centric distribution platform.

With the U.S.-based asset managers having reported their latest quarterly earnings, and in some cases revealing assets under management data for the end of July 2023, we have a better sense of the impact the recovery in the U.S. equity markets is having on results. As we've noted in the past, most of the traditional U.S.-based asset managers have become wholly dependent on equity market gains to grow their assets under management, given their lack of organic AUM growth, due to large exposure to higher-cost, poorer-performing active equity products relative to low-cost passive products. In an environment where fees are under pressure and profit margins are being affected by a need to spend more heavily to improve investment performance and enhance distribution, a precipitous decline in managed assets as we saw during 2022 has a large negative impact on revenue and profitability—especially considering the amount of operating leverage inherent in the asset manager business model.

There was little in narrow-moat Invesco's second-quarter results that would alter our long-term view of the firm. We are leaving our $18 per share fair value estimate in place. We view the company's shares as being close to fairly valued right now.

Invesco was for a long time a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic growth in assets under management (1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability, primarily because of the costs associated with its more retail-centric distribution platform.

Invesco had for a long time been a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic AUM growth (of 1.7% annually on average during 2008-17) with a broadly diversified platform (including a niche ETF product platform), despite generating below-average levels of operating profitability (primarily because of the costs associated with its more retail-centric distribution platform).

There was little in narrow-moat-rated Invesco's first-quarter results that would alter our long-term view of the firm. We are leaving our $18 per share fair value estimate in place. We view the company's shares as being only slightly undervalued right now.

Invesco had for a long time been a top pick for us among the traditional U.S.-based asset managers we cover, having generated solid organic AUM growth (of 1.7% annually on average during 2008-17) and having a broadly diversified platform (including a niche ETF product portfolio with PowerShares ETF operations, which were rebranded as Invesco ETFs in 2018), despite generating below-average levels of operating profitability (primarily because of the costs associated with its more retail-centric distribution platform).

While there was little in narrow-moat rated Invesco's fourth-quarter results that would alter our long-term view of the firm, we expect to raise our fair value estimate slightly given the higher level of assets the firm had under management at the end of 2022.