Invesco Q413 Analysis: Key Clients To Remain Invested

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BMO Capital Market analyst David J. Chiaverini and Richard Fellinger reiterate their Market Perform rating on Invesco Ltd. (NYSE:IVZ), below is their latest report.

Invesco 4Q13 earnings

Invesco Ltd. (NYSE:IVZ) reported 4Q13 adjusted EPS of $0.58 (BMO $0.55, cons. $0.57).

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Impact & analysis

P&L results were largely in line with our estimates, and the beat resulted from a lower than-expected tax rate and share count (management stepped up repurchases to $350mm in the quarter above our $50mm estimate). Longterm net inflows of $1B (+$0.3B active, +$0.7B passive) were much better than our estimate of $4B of outflows

In a stark contrast to recent trends, institutional flows (+$1.3B) outpaced retail (-$0.3B) in the quarter, as real estate and bank loan products continue to sell well in the institutional channel. All-in, alternative strategies (+$2.5B) saw the largest inflows during the quarter. Key takeaways include 1) following the announcement that Neil Woodford would be leaving (from Oct 15 to year-end), UK Equity Income had $4.8B of outflows, and management is optimistic existing clients will remain invested in the fund (or at least the franchise) including one public assurance from the Edinburgh Investment Trust (~$2B USD of AUM);

we continue to model $20B of outflows from the strategies as Woodford’s official departure date is at the end of April; 2) new product development was strong as Invesco Ltd. (NYSE:IVZ) launched more funds during the three months than any full calendar year over the past five years; strategies include the Global Total Return Funds and an expanded product suite in China; and 3) flows in balanced funds continue to struggle with $1B of outflows in 4Q13; increasing interest in risk-based assets is negatively affecting IBRA products.

Valuation & recommendation

Our 2014/2015 adjusted EPS estimates are unchanged at $2.40/$2.70. Our $36 price target is based on a sum- of- the- parts valuation (see page 2). We maintain our Market Perform rating owing to the remaining uncertainty surrounding Woodford’s upcoming departure.