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Invesco Earnings: Return to Inflows Marred by Lower Adjusted Operating Income Year Over Year

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While there was little in narrow-moat-rated Invesco’s IVZ 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.

Invesco reported third-quarter earnings per share of $0.35 on an adjusted basis, short of the FactSet consensus (as well as our own) estimate of $0.37. No single area was responsible for the shortfall; slightly lower adjusted revenue and slightly higher adjusted operating expenses, as well as differences in interest and other income below the line, led to slightly lower EPS overall than we were expecting.

Invesco closed the September quarter with $1.487 trillion in assets under management, down 3.3% sequentially but up 12.4% year over year. Net long-term inflows of $2.6 billion during the period returned Invesco to positive flows after $2.0 billion in outflows during the second quarter. Annualized organic long-term AUM growth of 0.3% during the first three quarters of 2023 was at the lower end of our five-year forecast for 0%-3% average annual organic AUM growth.

While average long-term AUM was up 2.7% year over year, Invesco reported a 0.3% year-over-year decline in third-quarter revenue due to a slight decline in its realization rate as well as lower performance fees year over year. The firm’s top line was down 6.6% for the first three quarters, and we still see revenue declining at a mid-single-digit rate for the full year.

Year-to-date adjusted operating margin of 28.7% was 680 basis points lower year over year but in line with our expectations. These results demonstrate the effects of negative operating leverage on the traditional asset manager model during difficult markets.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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