Expectations that outflows at wealth manager Janus Henderson ((JHG)) may have found a trough proved premature, as the December quarter revealed outflows deteriorated yet again.
Adjusted net profit in the fourth quarter was $123.9m while outflows rose to -$6.7bn. Some larger outflows are still expected in the first quarter of FY20, with around -$1.2bn to come from the emerging markets strategy (previously known) and -$5bn from a mandate loss in fixed income. The latter, whilst large, is at a lower fee Morgan Stanley points out.
On a more positive level, Macquarie finds the revival in retail flows amid stable performance metrics encouraging and upgrades to Outperform. The broker liked the average net increase in management fees and improvement in gross sales.
Intech
Citi assesses Intech remains a risk, despite an aggregate investment performance improvement on a three-year view. Around 40% of assets under management are now outperforming benchmark versus 26% three months ago.
However, this improvement was not as great as anticipated and the five-year performance is deteriorating. Intech has also not delivered on a promise of low volatility so the broker’s concerns about this part of the business continue.
Morgan Stanley forecasts -US$1bn in outflows for Intech in the first quarter of 2020. Still, the broker judges the company’s performance fees are looking healthy, given several EU-based strategies have improved.
Macquarie found, while increased performance fees were offset by higher employee expenses, making the underlying result a little weak, a strong market performance and FX movements more than offset the outflows. Net flows were disappointing, Citi agrees, but this disguised an improvement in equity and multi-asset flows.
Citi highlights some positive underlying trends: investment performance is strong and the management fee margin is stabilising or increasing. The broker upgrades to Buy, expecting further positive momentum in 2020.
Buyback
The company has approved another $200m buyback for 2020 which Macquarie calculates would be around 4% accretive to earnings per share at the current share price. This is similar to further buybacks conducted in 2019 and may please some investors, Credit Suisse acknowledges. If combined with a stable dividend in 2020, the broker expects the company will distribute roughly all its earnings through dividends/buybacks.
The size of the buyback also means it unlikely Janus Henderson will return to its progressive dividend policy this year. The sale of Geneva is expected to be completed in coming months but the impact is not deemed material. Although Geneva may be a headwind, along with remaining outflows, Citi remains optimistic that over the year as a whole there will be significantly lower net outflows. The margin mix should also improve.
FNArena’s database has three Buy ratings and one Sell (Credit Suisse). The consensus target is $40.64, suggesting 5.7% upside to the last share price. Targets range from $30.67 (Credit Suisse) to $47.00 (Morgan Stanley). The dividend yield at present FX values on 2020 and 2021 forecasts is 5.7% and 6.0% respectively.
