Janus Henderson (JHG) | Even flow proving illusive
Overall: JHG’s funds under management (FUM) bounced back strongly in 2Q20 (+14%) to drive a solid revenue and earnings beat. Whilst management struck an upbeat tone on the conference call, a positive net flows result appears unlikely in the short term. We maintain a HOLD rating.
2Q20 result: JHG reported adjusted operating income of US$138.4m, down 16% over the quarter and 9% on the pcp but ahead of our forecast. Adjusted revenue of US$413.3m was down 6.6% over the quarter, a strong result in the environment and aided by an unexpected US$17.2m of performance fees. Adjusted EPS of US$0.67 was also ahead of our forecasts, and boosted by one-off returns on seed capital. The company declared a quarterly dividend of US$0.36, in line with our forecast and unchanged over the quarter.
Drivers / surprises: Net fund outflows of US$8.2bn over the quarter were largely in Equities and Quant Equities and consistent with recent negative trends. Group FUM of US$336.7bn at 30 Jun-20 was higher than our US$310.0bn forecast, while the average revenue margin for the quarter (45.7bps) was also higher than expected. Both of these factors saw a solid revenue beat to our forecasts. On the cost side, non-staff costs were down 10% on the prior quarter and better than our forecast, while staff costs were higher than forecast.
Key takeaways: Management spoke to potential cost initiatives which may, in our view, see modest margin expansion over the forecast period but are unlikely to be a game changer. Meanwhile, investment performance has improved from a quarter ago (60% of FUM outperforming at Jun-20 on a one-year time frame, up from 50% at Mar-20) but weakness persists in Quant Equities (23% of FUM) and Equities (52%).
Changes to earnings: We increase our underlying EPS forecasts by ~20% over the forecast period, driven by the better-than-expected FUM and revenue performance.
Investment view: We maintain a HOLD rating. JHG remains in a very strong financial position and the dividend yield is attractive. That said, there remains risk to the flow outlook, in our view, given patchy investment performance and staff changes. Plus, we have a preference for domestic wealth management exposure, with our top pick being IOOF Holdings (IFL). Click here to read full report