Shares in fixed income and equities asset manager Janus Henderson Group (ASX: JHG) are trading near a 52-week low this morning after the asset manager disappointed the market with its financial performance for the quarter ending June 30 2018. Below is a summary of the results with comparisons to relevant prior corresponding periods (pcp) (all figures in USD).
- Total revenue $592.4 million, versus $396.6 million in the pcp
- Operating income of $175.3 million, versus $56.7 million in pcp
- Net profit $140.6 million, versus $41.7 million in pcp
- Basic earnings per share 70c, versus 29c in pcp
- Declared 36cps dividend
- Assets under management of $370.1 billion
- Net outflows of $2.7 billion for the quarter
- Cash and investments on hand of $1,368 million, versus debt of $330 million
- Authorised share buyback up to $100m
Janus Henderson is dual listed as its primary operations are run out of Denver in the U.S. and London England, with the U.S.'s Janus group specialising in fixed income funds management, while Henderson has traditionally been a global equities manager with a bent towards the U.K. and Europe.
The primary NYSE-listed scrip sells for US$29.16 and investors should take this into account when looking at figures such as dividend payments.
For ASX investors in the financial services space Janus Henderson is one of only a handful of asset managers including Macquarie Group Ltd (ASX: MQG) and Magellan Financial Group Ltd (ASX: MFG) that offer significant exposure outside the soft local equity market.
Both Janus and the Henderson Group have decent reputations in their space, with around $240 billion in group FUM covered by equities, while the rest falls under the fixed income or alternative assets umbrella. As such the group offers some diversification in asset class performance, although its overall results are tightly bound to the health of capital markets.
As a fund manager it's also quite scalable as its main cost is staff which means it boasts an operating margin of over 40%, with potential for it to extract more cost savings as a result of its recent merger.
For example shared costs such as IT, human resources, settlements, performance reporting, marketing, etc, at two fund managers combined can be pulled out, although the group flagged higher compliance costs as a result of the onerous MiFID II legislation in Europe. A fund manager is also scalable in the sense that a fund can grow from $500 million in size to say $1 billion, with almost no need to take on further staff, with fund managers earning revenues as a fixed percentage of total FUM.
Overall though the stock looks relatively cheap, with a healthy dividend yield. It has moderate growth opportunities ahead and could quite easily beat the market from here depending, inter alia, on FUM flows and cost controls.
For me it's not quite investment grade due to its large cost base, but you certainly could do a lot worse in the financial services space on the local market.
It's also worth remembering the considerable fee pressure the entire sector is under, which looks structural in nature. As such fund managers across the board are coming under share price pressure, with Fidelity Investments even recently offering exchange traded funds for no fees at all in a bid to win market share….
