Shares in international equities and fixed income manager Janus Henderson Group (ASX: JHG) are 6 per cent higher to a record high of $46.05 in morning trade after the US and UK-based group revealed its first set of financials as a combined entity.
Below is a summary of the results for the quarter ending June 30 2017, with all figures in US dollars.
- Assets under management increased to $345 billion, up 4% on a pro forma (combined entity) basis from Q1
- Quarterly pro forma revenue of $385 million
- Quarterly pro forma profit of $41.7 million
- Quarterly pro forma earnings per share of 67 cents
- Total net outflows of $1 billion for the quarter
- Declared a dividend of US 32 cents per share
- $57 million in "net run rate synergies" (cost savings) as a result of merger completed as at June 30
This is a business I have covered several times over the last couple of months and not for nothing either. As it looks a high-quality outfit in bringing together two asset management businesses (Janus & Henderson) with excellent reputations and track records.
Cost savings
Moreover, a merger of asset mangers can lead to big cost savings largely by reducing costs across shared services such as middle office functions like human resources, compliance, market / credit risk, performance reporting, client services, marketing, or even dealing.
Back office functions like settlements, reconciliations, fund accounting and corporate actions can also potentially be reduced to save a lot of costs. While general IT services and costs for example can also be shared to result in big cost savings.
In fact it's common for fund management teams to hire specialist consultants such as Bain Corp to draw up radical cost-cutting plans on their behalf in order to deliver, while washing their hands of the results to an extent. Not that there is any suggestion that happened in this instance.
The bottom-line boosting effect of the cost savings revealed today is probably what's supporting the share price, but should come as no surprise to regular readers even if it did to market analysts.
The fee-earning side of the fund managers such as the investment staff are obviously harder to cut, but the business is already showing the benefits with $57 million in cost savings delivered so far.
JHG is also benefiting from the strength of global capital and debt markets since the November 2016 election of President Trump. Other fund managers to have posted strong results on the ASX include IOOF Holdings Limited (ASX: IFL), with Magellan Financial Group Ltd (ASX: MFG) scheduled to hand down its profit report tomorrow.
JHG still trades on an attractive FX-adjusted earnings multiple and depending on further cost savings delivered and equity markets may have a strong run ahead.
