Morningstar | Cohen & Steers Navigates Higher Costs and Volatile Markets in 2Q; No Change to $45 FVE
There was little in narrow-moat-rated Cohen & Steers' second-quarter results that would alter our long-term view of the firm. We are leaving our $45 per share fair value estimate in place. The company closed out the June quarter with $60.2 billion in total assets under management, up 3.0% sequentially but down 0.4% year over year. Net inflows of $180 million returned the firm to positive organic growth after the company's reported outflows of $95 million during the first quarter put an end to nine straight quarters of net inflows for the firm. While we expect flows to be constrained at times during 2018-19, we continue to forecast full-year organic growth of 3%-5% this year and next, which is far better than most of Cohen & Steers' publicly traded peers.While average AUM was down 1.6% year over year, revenue increased 1.8% compared with the second quarter of 2017, much of which was due to an increase in the firm's realization rate to 0.575% (from 0.551%), driven primarily by changes in product and channel mix. We continue to forecast full-year revenue growth in a low- to mid-single-digit range, due to an ongoing mix shift into higher-fee-earning products, and expect longer-term top-line growth to be in a mid- to high-single-digit range as a result of more favorable product and channel mix.
As for profitability, the firm's first-half operating margins of 38.9% were a step down from 39.9% in the year-ago period, primarily due to an uptick in compensation costs. Even so, we still expect margins to end up between 39% and 40% of revenue this year and to hover around 40% over the remainder of our forecast period. In this projection, we see the operating leverage that active asset managers like Cohen & Steers have traditionally enjoyed being blunted by higher operating expenses, as the industry spends more to enhance/maintain investment performance and secure access to institutional clients and retail-advised platforms.
Cohen & Steers is a holding company. Through its subsidiaries, the company is an investment manager focusing on liquid real assets, including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions. The company manages three types of investment vehicles: institutional accounts, which represent portfolios of securities it manages for institutional clients; open-end funds, which provide and issue shares continuously as assets are invested and redeem shares when assets are withdrawn; and closed-end funds, which are registered investment companies that have issued a fixed number of shares through public offerings.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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