Morningstar | Lower Levels of AUM Dampen Eaton Vance's 4Q Results; Firm Starts Off Fiscal 2019 on Weaker Foot
We expect to lower our fair value estimate for narrow-moat Eaton Vance to $50 per share from $55 following a weaker close to fiscal 2018 than we had been projecting. The company closed out the October quarter with $439.3 billion in assets under management, down 3.1% sequentially but up 4.0% on a year-over-year basis (and below our own forecast of between $450 billion and $475 billion in managed assets). Net long-term inflows of $2.1 billion during the fourth quarter were the lowest level of inflows we've seen from Eaton Vance since the second quarter of fiscal 2016, causing us to temper our enthusiasm about organic growth in the year ahead. Eaton Vance's exposure management platform, which provides option overlay strategies (that can lead to heavier sales and redemptions) to institutional clients looking to customize their risk and return profiles, was the biggest detractor--posting $2.5 billion in outflows during the period.While average AUM was up 9.4% year over year during the fourth quarter, a decline in the company's overall effective fee rate (from 33.9 basis points to 33.4 basis points), due to ongoing fee compression and shifting product mix, left management fees up just 7.9% year over year. With distribution and service fees being flat to up just slightly year over year, the firm reported a 7.5% increase in total revenue during its fiscal fourth quarter. For the full year, Eaton Vance's top line increased 11.3% when compared with the year-ago period, in line with our forecast calling for high-single to low-double-digit revenue growth for all of fiscal 2018. As for profitability, full-year operating margins of 32.6% were 100 basis points higher year over year and in line with our fiscal 2018 forecast calling for operating margins of between 31% and 33%. Even so, with the firm starting off fiscal 2019 from a weaker position than we had previously forecast, we believe these types of results will prove difficult to replicate in the year ahead.
Eaton Vance is engaged in managing investment funds and providing investment management and advisory services to high-net-worth individuals and institutions. Through its investment affiliates, the company manages active equity, income, alternative and blended strategies across a range of investment styles and asset classes, including United States, global and international equities, floating-rate bank loans, municipal bonds, global income, high-yield and investment grade bonds, and mortgage-backed securities, as well as a range of systematic investment strategies, including systematic equity, systematic alternatives and managed options strategies.
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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