Company Reports

No-moat DWS reported a decent 5% growth in assets under management, or AUM, for the first quarter of 2024 compared with year-end 2023 and 12% growth compared with first-quarter 2023, leading DWS toward EUR 941 billion in total AUM. Most of the AUM increase is attributable to positive market dynamics and currency effects in fourth-quarter 2023 and first-quarter 2024, however, client net flows remained positive, as well. While we applaud DWS’ fundraising efforts, we are concerned about margin pressure and we are skeptical that it can achieve its cost/income target. We will update our model shortly, and that could result in a change to our EUR 48 per share fair value estimate. After a 30% rally in its share price, DWS is now trading at a 20% discount to our fair value estimate, which suggests that some upside remains.

DWS' new management team has made a positive start in stabilizing the business, but organizational culture does not change overnight and we remain concerned that the brand has been damaged by management instability, multiple restructurings, and the well-publicized greenwashing scandal.

We are dropping coverage of some of our European banks and asset managers. We will no longer be reporting on Santander, Credit Agricole, Julius Baer, Unicredit, Intesa Sanpaolo, Mediobanca, Amundi, KBC, DWS Group, BBVA, and Schroders. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

No-moat DWS reported another robust set of results for fourth-quarter 2021, growing net profit by 59% year on year to EUR 260 million. Net profit for the quarter also came in substantially ahead of the EUR 183 million the consensus of analysts collected by DWS expected. We have been critical in the past about DWS’ ability to hold on to client assets; this has also been one of the main reasons why we have not awarded DWS a moat rating. For the 2021 fiscal year, DWS recorded net new money inflows of EUR 48 billion--of which EUR 42 billion was into noncash funds. The positive inflows continue a trend of positive net inflows that started in 2019. If DWS can continue on this course in a more challenging fiscal 2022, it could force us to revisit our no moat rating for the firm. We maintain our EUR 56/share fair value estimate.

Years of mismanagement, at least four failed restructurings--where DWS Group GmbH & Co. was tossed around like an unwanted orphan between various divisions within Deutsche Bank--and countless management changes have left their mark on the business. DWS needs stability above anything else. Sticking to a strategy and a management team are needed to steady the ship.

No-moat DWS reported a robust set of results for the third quarter of 2021, growing net profit by 20% year on year to EUR 182 million. For the first nine months of 2021, DWS’ net profit is 32% ahead of what it reported for the same period in 2020. It does not seem the much-publicised "greenwashing" issue has had any impact on DWS’ financial performance. Inflows are still healthy and fee margins held up better than we expected. We increase our fair value estimate to EUR 56/share from EUR 46/share because of stronger-than-expected net inflows and stable fee margins.

No-moat DWS reported net income of EUR 172 million for the second quarter of 2021, 41% higher than the EUR 122 million it reported for the second quarter of 2020. Net income for the quarter was 10% ahead of the consensus expectation of analysts polled by DWS investor relations, with revenue coming in 2% ahead of expectations and costs 1% below. Growth in assets under management was stronger than we expected, with net inflows especially surprising on the upside. Flows into passive and environmental, social, and governance products was especially strong. Management fee margins held up well.

No moat DWS reported net income of EUR 169 million for the first quarter of 2021, 39% higher than the EUR 121 million it reported for the first quarter of 2020 and also 3% higher than what it booked for the final quarter of 2020. Net income for the quarter was 10% ahead of the consensus expectation of analysts polled by DWS investor relations. DWS recently guided that it anticipates flat pretax profit growth for 2021. This looks conservative given the low base created by the depressed market valuations in the first half of 2020. DWS beat consensus expectations on both the top line and expenses. Top-line growth was the result of healthy net new inflows, the recovery in markets, and performance fees. Management fee margins remain under pressure as clients increasingly favour passive products, although DWS did record net inflows into its active products for the quarter. The major reason why we decided not to award DWS a moat rating was that its historical track record did not indicate that it had the ability to hold on to client assets. If it can continue to produce healthy net new money inflows, we will have to reconsider our view. For now we maintain our no-moat rating and EUR 47 per share fair value estimate.

No-moat DWS Group reported net income of EUR 558 million for the 2020 fiscal year, 9% higher than the EUR 512 million it reported for 2019 and almost exactly equal to the EUR 564 million we expected. Revenue declined by 6%, but this was solely due to performance fees halving, growth in the recurring component of revenue--management fees--was flat year over year. Costs declined by 11% year on year, with DWS' cost/income ratio improving to 66% from 69% as a consequence. While revenue is likely to benefit from higher average assets under management in 2021--from the strong recovery in markets--expenses will be under pressure as we believe some expenses were deferred and DWS, like many other firms will have to play catch up. We maintain our EUR 47 fair value estimate and no moat rating.

No-moat DWS Group reported net income of EUR 151 million for the third quarter of 2020, 31% higher than the EUR 116 million it reported for the third quarter of 2019, DWS also comfortably exceeded the EUR 133 million expected by the consensus of analysts collected by DWS itself. The earnings beat was driven by expenses coming in lower than anticipated. We maintain our EUR 47 fair value estimate.

We recently initiated coverage on the three largest, separately listed European asset managers: Amundi, DWS Group GmbH & Co., and Schroders. We believe Amundi and Schroders benefit from economic moats, based on switching costs and intangible assets. DWS' long history of client outflows argues against a moat rating. Amundi's captive distribution agreement with parent Credit Agricole lends strong support to its moat rating. The diversity of Schroders' business, with increasing success in noncommoditized products like multimanagement and alternatives supports a moat rating.

We value DWS Group GmbH & Co. at EUR 47 per share, which is 18 times the earnings that we estimate DWS will generate in 2020. We don't believe DWS benefits from an economic moat. In order to qualify for an economic moat, we must have confidence a firm will generate economic profits for an extended period. We don't have that confidence in DWS, especially considering its poor long-term track record of investor outflows.

Years of mismanagement, at least four failed restructurings--where DWS Group GmbH & Co. was tossed around like an unwanted orphan between various divisions within Deutsche Bank--and countless management changes have left their mark on the business. DWS needs stability above anything else. Sticking to a strategy and a management team are needed to steady the ship.