While George Soros (Trades, Portfolio) sold out of Investo Ltd. (IVZ, Financial) last quarter, Ray Dalio (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) all added to their holdings and Jim Simons (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) established positions. It’s funny to think about top-tier money managers buying the same stocks as other money managers, but that’s what’s happening here.
Invesco is an investment company with close to $1 trillion in total assets under management through its Invesco, Trimark, Perpetual, PowerShares and W.L. Ross subsidiaries. It spreads these assets across equity (47%), fixed-income (24%), alternative investments (15%), balanced (6%) and money market (8%) funds, with distribution heavily weighted toward retail investors (66% of assets under management).
From a financial standpoint, Invesco has generated over $7.5 billion in net income on $42.2 billion in total revenue over the past decade. It has also paid out $5.14 per share in dividends over the last five years alone, while the current dividend yield is slightly below 5%. More importantly, with the company’s stock priced at 8.5 times earnings, almost on par with its book value, and trading down 36% year to date, it’s time to buy.
The company closed out its latest quarter with $963.3 billion in assets, up 12.2% year over year. Revenues rose 8% due, in part, to the acquisition of Guggenheim Investment’s exchange-traded fund business. Despite net outflows being slightly worse, they were still less than 1% of total assets under management.
Invesco continues to gain better distribution as the industry moves to more machine-managed money. Granted, during the next market and economic crisis, outflows are bound to happen in larger quantities. Unless today’s capital assets become less desirable, however, the company will be able to weather any storm. To the company’s credit, it is already offering low-cost products across its platform. Plus, business optimization initiatives are expected to generate annualized cost savings of $65 million this year. The balance sheet is strong and the company will continue to reduce its leverage after spending a ton of cash on acquisitions in the first half of the year.
Again, from a numbers standpoint, maybe the market is anticipating the worst because analysts are estimating earnings per share to come in around $2.80 this year and over $3 next year. Taken private, that would equate to a 24% payback in two years based on today’s price. Invesco has grown top and bottom-line numbers as well as book value. It has virtually no capital expenditure costs and has an impressive 21% net profit margin.
Guggenheim’s ETF tacked on another $38 billion to Invesco’s assets under management and investors should expect more acquisitions. While very few companies have this level of assets, BlackRock (BLK, Financial) is still the leader with $6.3 trillion under management. While it’s priced at 1.2% of assets, the same valuation would put Invesco’s stock in the $28 range. It’s not even a question of whether more money will flow into Invesco in the next 10, 20 and 30 years. The question is whether the market will value asset managers as highly once they are all driven by robots instead of humans.
Disclosure: I am not long or short any stocks mentioned in this article.
