Morningstar | Continued Outflows Weigh on Janus Henderson; Expect No End to Negative Organic Growth. See Updated Analyst Note from 05 Feb 2019
There was little in narrow-moat-rated Janus Henderson's fourth-quarter results that would alter our long-term view of the firm. We are, however, lowering our USD 26/AUD 36 per share fair value estimate to USD 24/AUD 33 following what were weaker than expected near-term results from the asset manager.Janus Henderson closed out the December quarter with USD 328.5 billion in managed assets, down 13.1% sequentially and 11.4% on a year-over-year basis, and worse than our forecast calling for assets under management of USD 350 billion. Net outflows of USD 8.4 billion during the period were also worse than our forecast (calling for USD 3.3 billion in outflows), driven by net redemptions from fundamental equities (USD 4.1 billion), alternatives (USD 2.2 billion), fixed-income (USD 1.3 billion) and quantitative equities (USD 1.1 billion). On a positive note, management did note that assets under management are up 5% since the start of the year, driven by market gains and an improved flow environment (which investors should not read as positive flows). Given our expectations for more volatile equity and credit markets in the near to medium term, we continue to expect Janus Henderson to struggle to generate positive organic growth.
While average AUM was down just 5.0% during the fourth quarter (when compared with the prior year's period), revenue declined 12.3% on a pro forma basis as shifting product mix led to a decline in the firm's realization rate, and performance fee income came in meaningfully lower year over year. Full-year top-line growth of 0.5% was worse than our forecast of 3%-5% revenue growth for 2018. As for profitability, full-year adjusted operating margins of 28.2% were at the lower end of our forecast of 28%-29% for 2018. We continue to expect Janus Henderson's operating margins to remain closer to 28% over the rest of our five-year forecast period.
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