Fundamentals Strong But Uncertain Global Outlook A Problem For BlackRock
Black Rock, Inc. (NYSE:BLK) is a forerunner in investment, risk management and advisory services for institutional and retail clients all over the world. The company offers products that crosses the risk spectrum to meet clients needs, including active, enhanced and index strategies across markets and asset classes. The investment management services of Black Rock cater primarily to institutional investors. The company adopts passive strategies for assets under management.
Black Rock enjoys a good dividend yield, and despite the crisis, has consistently raised its payout. In the past few months it had also been getting some positive response from analysts. However, the global uncertain scenario makes the stock a bit risky.
The third quarter profit per share of BlackRock, Inc. (NYSE:BLK) stood at $3.65 per share, an increase from 13% in the corresponding quarter of 2011. The net income recorded was $642 million compared to $595 million from the last year.
Total revenue increased to $2.32 billion from $2.22 billion last year. Revenue grew 4% from the third quarter 2011 indicating positive market factors, positive net new business, and strength in performance fees and Black Rock Solutions.
Black Rock has performed poorly regarding its revenue growth in the past three years. The firm posted a revenue of $9.08 billion at the end of 2011, which has declined to $9.02 billion over the past twelve months. Despite that the basic EPS has surged from $12.54 to $13.15 during the past twelve months due to a decrease in expenses.
Cash flow generation has also been showing a sluggish growth, and trailing twelve months cash flows from operations have come down to $67 million, below the numbers reported at the end of 2011. However, free cash flows have increased and currently stand at $2.6 billion, compared to $2.58 billion reported a year ago.
For the third quarter, investors withdrew $43 billion from the company’s long-term funds and accounts, along with a loss of $36 billion from one client in the first quarter. Institutional customers also pulled out $2.9 billion from its higher-fee alternative investments and $5 billion from actively managed stocks. Its total assets under management were up 3 percent during the quarter and up 10 percent from a year ago.
A Good move
Recently, BlackRock, Inc. (NYSE:BLK) announced plans to cut fees on six iShares funds and introduce four new low-cost funds. Though the cut in fees could hamper the BlackRock’s annual revenue by $35 million to $40 million, but the growth from new ETFs could overtake the losses.
In the first significant purchase for its Alternative Investors unit, set up in 2010, BlackRock announced plans to acquire Swiss Re’s (NYSE:CS) private equity fund. The deal will give BlackRock access to large European investors as it seeks to expand its customer base.
iShares has already expanded its impetus and share in Europe over the past 18 months, while no other provider has gained an incremental share, and there appears to be some panic amongst competitors (Lyxor recently lost two executives). The CS transaction could help iShares widen their momentum in the near term and keep others from gaining momentum.
BlackRock, Inc. (NYSE:BLK) announced that its iShares dominated the global industry in 2012 by raking in $85.3 billion in new flows. The contributions came in from all regions. However, iShares U.S. product line dominated the other regions with a record $61.0 billion of new assets in 2012 outpacing the earlier record of U.S. iShares of $59.1 billion in 2007.
In Europe, iShares took away 56% of all new money entering European ETPs, recording $18.3bn in net new flows. Canada iShares also witnessed a robust year with its asset under management (AUM), increasing to $42.0 billion as the broader Canadian market posted the second highest rate of growth in ETF assets of any region for 2012. iShares global AUM reached $758.6 billion as of 31 December 2012.
From capital market participants seeking deep liquidity to investors wanting specialized exposure, to a growing segment of the market using ETFs as buy and hold investment vehicles, iShares seem to be the product for everyone.
2013 outlook from Black Rock
In Black Rock’s 2013 Investment Outlook, the experts cite that the probable turnarounds in the ongoing stimulus measures will be a major catalyst in framing the economic scenario in the future.
The AMC has listed a few fundamentals for 2013, those are:
Black Rock noted that it has become more positive about the projection of “risk assets and stabilizing economic growth (albeit at low levels). Low expectations = potential upside surprises.”
The US economy should gain momentum and help boost the global growth. The Fiscal cliff can be avoided and compromised on a sustainable budget.
Many investors lack confidence in markets where risk taking is often punished, and trends last an emaciated minute. Rome—and confidence—was not built in a day.
The era of ultra-loose monetary policy may come to an end, challenging “safe” fixed income assets and harbinger a shift toward equities. Safety = new tail risk.
“Income investing works in a zero-rate world—but the hunt for yield has narrowed valuations between top-quality and not-so great income assets. Take out the garbage.”
The CEO of Black Rock Inc sniffs out possible departure risk and gives clear signs that he is going to stay with the company as of now and for as long as board would like him to. He also said that the company is looking ahead to positive fourth quarter revenue and that the revenue prospects will be favorable. There is a greater focus towards revenue contribution and the company is looking forward to 5% to 6% organic growth.
BlackRock, Inc. (NYSE:BLK) is well positioned in the volatile industry scenario, revenue and income should be favorable in 2013. The company has reiterated that it will not incline towards uneconomic business for the sake of growth.
However, there are some issues which cannot be let go. According to management at BLK there are severe headwinds on industry revenues indicating outflows, fading between alpha/beta solutions. Other than this the rising regulatory burdens on the industry and also globally.