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Janus Henderson: Bear Market Recovery Has Likely Stalled, With Headwinds Remaining for the Firm

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While our fair value estimate for narrow-moat Janus Henderson’s JHG 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.

Janus Henderson closed out June 2023 with USD 322.1 billion in assets under management, up 7.5% year over year. Total net inflows of USD 5 billion during the first half of the year were driven primarily by significant institutional inflows in the first quarter, which we do not expect to repeat in the coming quarters. In fact, management has noted that the firm continues to anticipate that it will have several quarters of net inflows over the next one to two years.

Although average AUM looks like it will be up around 5% year over year during 2023, we expect Janus Henderson to struggle to generate positive top-line growth this year, with our expectations for full-year revenue growth in a negative 5%-10% range. Our five-year forecast (which includes another equity market correction near the end of our projection period) has revenue declining at a low-single-digit rate on average annually during 2023-27.

As for profitability, Janus Henderson’s adjusted GAAP (non-GAAP) operating margins of 21.6% (30.2%) during the first half of 2023 were 410 (490) basis points lower year over year, reflecting the negative side to the operating leverage in the asset manager’s business model. We continue to project adjusted GAAP (non-GAAP) operating margins of 19%-24% (31%-34%) during 2023-27—well below levels expected to be generated by peers.

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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