Morningstar | Natixis 2Q 2018: Good Set Of Results
No-moat Natixis reported net income of EUR 580 million for the second quarter of 2018, 19% ahead of the year-ago period. For first-half 2018, Natixis has now delivered net profit of EUR 903 million, half of our full-year estimate of EUR 1.8 billion for 2018. Unlike most of its European rivals, Natixis generated very healthy top-line growth, with revenue increasing by 7% for the quarter relative to second-quarter 2017. Good cost control saw the cost/income ratio improve to 63% (66% in second-quarter 2017) and preprovision profits increase by 15%. We maintain our EUR 5 fair value estimate and our no-moat rating.Asset and wealth management (35% of revenue) remains the growth engine for Natixis with revenue growth of 10%. Excluding the impact of a soft U.S. dollar, revenue would have grown by 15%. The increase was driven by net new money inflows of EUR 10 billion for the quarter combined with an increase in the average fee (excluding performance fees) to 0.31% (0.28% previously). The strong inflows into alternative strategies explain some of the higher margins, as these strategies are typically able to charge higher fees. We like Natixis' strategy of increasingly allocating resources to alternative strategies, which are less exposed to the risk of passive investment managers eating their lunch.
Investment banking contributes 41% of Natixis' revenue and consumes 51% of its capital. As is the case at most of its peers, investment banking earnings at Natixis are under pressure, with preprovision profits down by 10%. Within the investment bank, revenue was saved by the global finance (lending) business, which increased revenue by 11%, while global markets (trading) revenue declined by 21%. We don't believe that Natixis is moatworthy, mainly owing to our concerns around its investment banking franchise. Natixis' investment banking results for this quarter have done little to lessen our concerns.
Natixis is a player in the European banking industry. As the banking partner of large companies in France, Co. also plays an active role in serving financial institutions (banks, insurance companies, pension funds, etc.). Co.'s activities are divided into in three main business lines: Wholesale Banking, Investment Solutions (Asset Management, Private Banking, Insurance, and Private Equity) and Specialized Financial Services. Co. operates in four geographical regions: France; other EU countries; North America (Canada, USA); and other OECD countries. As of Dec. 31 2013 Co.'s total assets totaled Euro510,131,000,000.
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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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