EUR 850.00 For Business Accounts Only

Morningstar | 4Q Market Sell-Off and Outflows Mar Invesco's 2018 Results; No Change to $25 FVE

There was little in narrow-moat-rated Invesco's fourth-quarter results that would alter our long-term view of the firm. We are leaving our $25 fair value estimate in place. Invesco closed the December quarter with $888.2 billion in managed assets, down 9.5% sequentially and 5.3% year over year. Excluding the impact of the Guggenheim acquisition and the onboarding of its Chinese joint venture, which added $38.1 billion and $9.5 billion in assets under management during the second and third quarters of 2018, respectively, managed assets were down 10.3% year over year. Long-term AUM outflows of $22.4 billion during the fourth quarter, driven by net redemptions from both active ($17.5 billion) and passive ($4.9 billion) strategies, were about $3 billion worse than our expectations. From an asset class perspective, equities ($10.3 billion) and fixed income ($7.3 billion) were the biggest detractors during the quarter. Full-year organic growth of negative 4.5% was Invesco's worst showing since 2008, with much of the shortfall occurring in the back half of the year.

While average AUM was down 0.6% year over year during the December quarter, Invesco reported an 8.7% revenue decline compared with the prior-year period due to a large drop-off in performance fees and a lowering of its overall effective fee rate to 0.411% (from 0.472% during the fourth quarter of 2017). Full-year top-line growth of 3.0% was in line with our expectations. Our current forecast for 2018-22 overall has Invesco generating average annual organic growth of around to negative 1%, with revenue expanding at a 1.9% compound annual growth rate. While full-year adjusted operating margins of 25.2% were 150 basis points lower than in 2017 as noncompensation expenses expanded faster than revenue, they were in line with our forecast of 24%-26%. Our five-year forecast continues to call for operating margins closer to 26% on average.