EUR 850.00 For Business Accounts Only

Morningstar | Weaker Equity Performance and Outflows Impact Legg Mason's Fiscal 2019; No Change to FVE

There was little in no-moat-rated Legg Mason's fiscal fourth-quarter results that would alter our long-term view of the firm. We are leaving our $30 per share fair value estimate in place. Legg Mason closed out the March quarter with $758.0 billion in AUM, up 4.2% sequentially and 0.5% on a year-over-year basis. Outflows continue to affect the firm's equity AUM, which lost another $1.0 billion ($7.6 billion) to outflows during the March quarter (fiscal 2019), with weaker relative investment performance in both Legg Mason's large-cap and small-cap equity offerings likely to keep outflows elevated for some time. While positive flows from the firm's alternatives ($900 million) and fixed-income ($100 million) offerings helped make up for the equity outflows, full-year organic growth of negative 1.5% was in line with our forecast calling for negative 1%-2% organic growth for all of fiscal 2019. The company also recorded $8.1 billion in outflows from its cash management operations during the fourth quarter, bringing full-year inflows to $2.5 billion.

While average long-term AUM was down just 2.4% year over year, Legg Mason reported an 11.8% decline in its fiscal fourth-quarter revenue, driven by a 9.8% reduction in its realization rate (to 0.361% from 0.385%), as well as meaningfully lower performance fee income year over year. This left the company's top line down 7.5% during fiscal 2019, in line with our full-year forecast calling for a mid- to high-single-digit decline in revenue. With regards to profitability, full-year adjusted operating margins (by our calculations) of 16.5% represented an 80 basis-point decrease in margins year over year, with higher occupancy and communications and technology costs being primarily responsible for the increase in expenses. That said, the firm's profitability was right in line with our full-year forecast calling for operating margins in a 16%-17% range. Legg Mason also raised its quarterly dividend 18% to $0.40 per share.