Morningstar | 4Q Market Sell-Off and Outflows Mar T. Rowe Price's Solid 2018 Results; No Change to FVE
There was little in wide-moat-rated T. Rowe Price's fourth-quarter results that would alter our long-term view of the firm. We are leaving our $112 per share fair value estimate in place. T. Rowe Price closed out the December quarter with $962.3 billion in managed assets, down 11.2% sequentially and 2.9% year over year. Net outflows of $8.4 billion were expected, given the sell-off in the equity markets during the fourth quarter, but did detract from the $21.6 billion in positive flows that the company recorded during the first three quarters of 2018. That said, T. Rowe Price's solid organic growth of 1.3% this past year was driven by the firm's solid long-term investment performance, as well as increased penetration of the retail channel (not only with fund supermarkets but broker/dealers), which we expect to continue to be contributors to flows over the next several years.While average AUM was up 3.6% year over year during the December quarter, T. Rowe Price reported only a 0.6% increase in revenue compared with the prior year's period, due primarily to a 13.1% decline in administrative, distribution, and servicing fees, as well as a lowering of its overall effective fee rate to 0.464% from 0.471% during the fourth quarter of 2017. Full-year top-line growth of 10.7% was at the lower end of our full-year projection for 10%-13% revenue growth. Our current forecast for 2018-22 overall has T. Rowe Price generating low- to mid-single-digit AUM growth on average, with organic growth averaging close to 2% annually and revenue expanding at a 3.2% CAGR. As for profitability, full-year adjusted operating margins of 43.7% were 125 basis points higher than 2017 levels, as compensation and other expenses expanded at a slower rate than revenue. This was slightly below our forecast range of 44% to 45%. Our five-year forecast continues to call for operating margins of 43%-44% on average.
T. Rowe Price Group is a financial services holding company that provides global investment management services. The company provide a range of United States mutual funds, subadvised funds, separately managed accounts, and other T. Rowe Price products. The company also provides certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; and trust services. The company also provide non-discretionary advisory planning services to fund shareholders and potential investors.
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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