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Invesco Earnings: Return to Outflows and Higher Costs Mar Results

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Invesco Ltd
(IVZ)

There was little in narrow-moat Invesco’s IVZ 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 reported second-quarter earnings per share of $0.31 on an adjusted basis, short of the FactSet consensus of $0.40 and our own estimate of $0.37. The majority of the shortfall was driven by weaker fee income and higher compensation and distribution costs than we had been projecting (some of which was related to harder-to-forecast costs for executive retirements and organizational changes).

Invesco closed out the June quarter with $1.538 trillion in assets under management, or AUM, up 3.7% sequentially and 10.6% year over year. Net long-term outflows of $2.0 billion during the period (following a seasonally positive quarter of flows in the first quarter) resumed a stream of negative quarterly flows that started in the second quarter of 2022. Annualized organic long-term AUM growth of negative 0.6% during the June quarter was just outside our five-year forecast range calling for 0% to positive 3% average annual organic AUM growth.

While average long-term AUM was down 2.8% year over year, Invesco reported a 5.7% decline in second-quarter revenue when compared with the prior year’s period due to a decline in its realization rate, as well as a drop in other fees and revenue. Although the firm’s top line was down 9.5% during the first half of 2023, easier comparables in the back half of the year should allow the company to match our target for a low- to mid-single-digit decline in revenue this year.

As for profitability, Invesco’s adjusted operating margins of 29.0% during the first half were 760 basis points lower year over year but in line with our expectations. These results demonstrate the effects of negative operating leverage on the asset manager business model during poor and recovering 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, CFA

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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