Company Reports

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 Janus Henderson to $29 per share from $25 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 also rising 7%, Janus Henderson saw a 9% 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 by 16%.

A confluence of several issues—poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel—has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While we believe there will always be room for active management, the advantage when it comes to getting and maintaining placement on distribution platforms will probably go to asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees—with Janus Henderson falling short in most of these categories.

While there was little in narrow-moat rated Janus Henderson's fourth-quarter results that would alter our long-term view of the firm, we expect to increase our $25 per-share fair value estimate around 10% once we've incorporated the results into our valuation. This would leave the company's shares slightly overvalued relative to their Feb. 1 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.

We've lowered our fair value estimate for Janus Henderson to USD 25/AUD 39 per share from USD 26/AUD 41 after revising our near-term expectations for assets under management, revenue, and profitability. Our fair value estimate implies a price/earnings multiple of 10.7 times our 2023 adjusted earnings estimate, 11.0 times our adjusted 2024 earnings estimate, and 10.1 times our adjusted 2025 earnings estimate. We view the shares as fairly valued.

A confluence of several issues—poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel—has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While we believe there will always be room for active management, the advantage when it comes to getting and maintaining placement on distribution platforms will probably go to asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees—with Janus Henderson falling short in most of these categories.

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.

While there was little in narrow-moat-rated Janus Henderson's third-quarter results that would alter our long-term view of the firm, we expect to lower our USD 26 (AUD 39) share fair value estimate 5%-10% to account for the impact that continued equity and credit market headwinds will have on results in both the near and long terms. We view the shares as being slightly undervalued.

While our fair value estimate for narrow-moat Janus Henderson's shares has not changed at USD 26, we are increasing our estimate for the Australia shares to AUD 41 from AUD 39, owing entirely to a change in the USD/AUD currency exchange rate from 0.67 USD/AUD to 0.63 USD/AUD since our last update. We view the shares as being modestly undervalued.

A confluence of several issues—poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel—has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While we believe there will always be room for active management, the advantage when it comes to getting and maintaining placement on distribution platforms will probably go to asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees—with Janus Henderson falling short in most of these categories.

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-rated Janus Henderson's second-quarter results to alter our long-term view of the firm. We are leaving our USD 26 (AUD 39) per share fair value estimate in place and view the shares as being slightly to modestly overvalued right now.

We've raised our fair value estimate for Janus Henderson to USD 26 (AUD 39) per share from USD 24 (AUD 37) after updating our valuation model to account for higher levels of assets under management, or AUM, than we had been projecting for the firm at this point in the cycle. Our new fair value estimate implies a price/earnings multiple of 11.8 times our 2023 earnings estimate and 11.1 times our 2024 earnings estimate. For some perspective, during the past five (10) years, the company's shares have traded at an average of 10.4 (13.3) times trailing earnings.

A confluence of several issues--poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel--has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While we believe there will always be room for active management, the advantage when it comes to getting and maintaining placement on distribution platforms will probably go to asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees.

While there was little in narrow-moat Janus Henderson's first-quarter results to alter our long-term view of the firm, we are likely to increase our fair value estimate 5%-10% to account for higher levels of asset under management, or AUM, than we had been projecting for the firm at this point in the cycle. The company reported adjusted earnings per share of USD 0.55 for the March quarter, better than the FactSet consensus estimate of USD 0.49 and our own USD 0.52 forecast. Much of the difference was due to the company generating higher levels of managed assets, revenue, and earnings than we had forecast.

While there was little in narrow-moat-rated Janus Henderson's fourth-quarter results to alter our long-term view of the firm, we are likely to increase our fair value estimate 5%-10% to account for higher levels of assets under management, or AUM, as well as revenue and profitability, than we had been projecting for the firm in the near term. The company reported adjusted earnings per share of USD 0.61 for the fourth quarter, better than the FactSet consensus estimate of USD 0.45 and our own projection for USD 0.42. Much of the difference was due to the company generating higher levels of managed assets, revenue, and profitability for the period than we had forecast.

A confluence of several issues—poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel—has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While we believe there will always be room for active management, the advantage when it comes to getting and maintaining placement on distribution platforms will probably go to asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees.

While there was little in narrow-moat Janus Henderson's third-quarter results that would alter our long-term view of the firm, we expect to lower our fair value estimate to USD 24/AUD 37 per share from USD 27/AUD 39. Given the likelihood of weaker equity and credit markets in the near term, as well as some additional institutional outflows the company announced for the fourth quarter, we expect to lower our expectations for assets under management, revenue, and profitability. We view the shares as only slightly undervalued relative to our revised estimate.

We've lowered our fair value estimate for Janus Henderson to USD 27/AUD 39 per share from USD 32/AUD 46 after adjusting our near-term expectations for assets under management, revenue, and profitability following the precipitous decline in the company's managed assets during the first half of the year. We view the shares as being only modestly undervalued relative to our revised estimate, which assumes a 0.70 U.S. dollar/Australian dollar currency exchange rate and implies a price/earnings multiple of 11.1 times our 2022 earnings estimate, 11.8 times our 2023 earnings estimate, and 12.4 times our 2024 earnings estimate.