London-based Henderson Group plc (ASX: HGG) is slated to released full-year results overnight (9 February – London time). Investors await with bated breath as the former AMP Limited (ASX: AMP) subsidiary provides its first full-year results following the historic "Brexit" referendum on 23 June 2016.
With its shares currently down 30% over the last 12 months, here's what I think investors should look out for in the results before deciding whether to buy its shares.
About Henderson
At the core of its operations, Henderson is a very simple business.
As stated on its website, Henderson is an independent asset manager founded on the notion to provide consistent long-term returns to its investors through tactical asset management and selection. Put simply, it manages investors' money with the sole aim of generating market-beating returns.
Throughout its illustrious 80-year history, Henderson has become the gold standard of asset management in Europe, delivering strong returns for its clients over many years. However, in the wake of the Brexit, Henderson's business model faces disruption as uncertainty around EU regulations take a toll on funds under management.
Accordingly, the three things I'll be looking out for in its 2016 full-year results are:
1. Assets under management
In its third-quarter trading update provided in October, Henderson revealed that assets under management was up 6% to GBP100.9 billion, driven by weakness in the sterling against other currencies.
Whilst a pleasing result, the uptick appears to be a result of a general rise of global share markets rather than an inflow of funds. In fact, Henderson was in a net outflow position of GBP0.6 billion for the quarter, as institutional inflows failed to offset retail fund outflows of GBP1.0 billion.
In my mind, this does not bode well for a company which generates most of its fees from assets under management, thus a turnaround to the net flows position is something I'd want to see in its results.
2. Merger update
Perhaps as a sign that Henderson's future is uncertain in the aftermath of Brexit, Henderson and US-based Janus Capital Inc agreed to a merger of equals in early October.
Under the proposed terms, Henderson and Janus will merge to form a truly global asset management firm, with combined assets under management in excess of US$350 billion and annual earnings of around US$700 million (pre-synergies). The proposed equity split of the new Janus Henderson Global will be 57-43 in favour of Henderson.
Importantly, the merger will enable Henderson to enter the US market and diversify its earnings base which is a significant step to de-risk the European asset manager.
Accordingly, I'd want to see that the merger plans are progressing well in its results announcement before deciding to buy.
3. Special dividend
Finally, as part of the merger deal, Henderson and Janus announced in late January that both companies will pay a special dividend reflecting their first quarter 2017 earnings.
Whilst the quantum of the extraordinary dividend is unknown, this is something investors should keep an eye out for in its results.
Foolish takeaway
The prospects of the Janus merger and special dividend make Henderson a stock to take note of.
Nevertheless, one of the most important things I'll look out for when it announces results overnight is the flow of funds for its existing business. Even if the company reports an increase to assets under management (because of global market sentiment), I'd want to see confidence within its European business before I commit any fresh funds to the company.
