Weekly Equity Idea Highlight - 2020 04 13
The market is expecting BLK to see the economic moats the company has spent the last decade and more successfully building in the ETF and asset management business collapse.The market expects the company, which has seen UAFRS-based (Uniform) ROA mostly plateau around 30%-35% levels to decline by almost half going forward, not recognizing the company's strong business model that is unlikely to be disrupted.
BlackRock's leadership in the ETF space and other parts of asset management, thanks to its size and scale, allow it to offer the lowest cost and most liquid options in the market, giving it the ability to sustain its returns even before the company's other best in class solutions are available.
Furthermore, management alignment, driven by management's material stakes in the business and their growth and margin focused metrics, aligns management to maintain returns while growing the business.
Finally, management's confidence about the business model, in terms of AUM growth, the ETF strategy, and their non-portfolio management solutions all trending positively, points to robust tailwinds for the company going forward.
Considering pessimistic market expectations, the company's strong strategy and economic moats, and positive fundamental momentum, there is significant equity upside for BLK.
BlackRock is an investment management firm. The company provides a range of investment and technology services to institutional and retail clients worldwide. Products are provided directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds, iShares? exchange-traded funds, separate accounts, collective investment trusts and other pooled investment vehicles. The company also provides technology services, including the investment and risk management technology platform, Aladdin?, Aladdin Wealth, eFront, Cachematrix and FutureAdvisor, as well as advisory services and solutions to a base of institutional and wealth management clients.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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