Analyst Note| Greggory Warren, CFA |
We've increased our fair value estimate for Janus Henderson to USD 36 (AUD 49) per share from USD 30 (AUD 39) to account for the continued recovery in the company's AUM following the steep COVID-19-induced sell-off in the March quarter of 2020, as well as adjustments to our near- to medium-term forecasts for the firm. Janus Henderson closed out the second quarter of 2021 with a record USD 427.6 billion in AUM, up 27.0% on a year-over-year basis. Net outflows of $9.8 billion was indicative of a negative 2.9% organic AUM growth rate, at the lower end of our forecasted range of negative 1%-3% annual organic AUM growth for the firm during 2021-25). With total and average AUM growth expected to be in a low- to mid-single-digit range going forward, we believe base management fee pressures (as well as an anticipated equity market correction) will keep Janus Henderson from consistently generating positive top-line growth after 2021 (where top-line growth is expected to be up around 20%). The end result is a positive 4.2% CAGR for revenue during 2021-25 (with much of that result being front-end loaded). As for profitability, with asset-management firms like Janus Henderson expected to not only pare back their fees but also spend more to produce better investment results and enhance distribution, we expect adjusted operating margins to hover between 26% and 29% during the course of our five-year projection period (with 2021 expected to be an outlier year due to significantly lower costs as travel and other selling costs have declined in response to the pandemic).