Net Inflows And Cost Management Will Boost Efficiency In Passive And Xtrackers Businesses

Key Takeaways

• Strong net inflows in Passive and Xtrackers businesses, along with infrastructure investments, are set to enhance future revenue growth.
  
• Strategic workforce initiatives and disciplined cost management aim to improve efficiency and boost net margins by lowering the cost-income ratio.
  
• Margin pressure and competition may limit profitability, while reliance on market performance and exchange rates adds uncertainty to earnings and revenue.

Catalysts

Offers asset management services in Europe, the Middle East, Africa, the Americas, and the Asia Pacific.

• DWS Group has demonstrated strong net inflows and increased assets under management, particularly in their Passive and Xtrackers businesses, which are likely to enhance future revenue growth.
  
• The company expects to return to net inflows in Alternatives, particularly through infrastructure investments, which could significantly contribute to revenue enhancement moving forward.
  
• DWS is focused on achieving a cost-income ratio below 59% by 2025 through disciplined cost management and strategic workforce initiatives, potentially boosting net margins.
  
• Increased investments in product innovation and successful launches in thematic ETFs enhance their growth trajectory, suggesting positive impacts on future earnings.
  
• DWS has a strong focus on managing human capital to reduce operational costs and improve efficiency, pointing toward better operational leverage and earnings growth.

DWS Group GmbH KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DWS Group GmbH KGaA's revenue will decrease by -7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.1% today to 28.9% in 3 years time.
• Analysts expect earnings to reach €899.3 million (and earnings per share of €4.5) by about December 2027, up from €597.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.3x on those 2027 earnings, down from 14.0x today. This future PE is lower than the current PE for the DE Capital Markets industry at 23.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.16%, as per the Simply Wall St company report.

DWS Group GmbH KGaA Future Earnings Per Share Growth

Risks

• The ongoing margin pressure despite growth in management fees may limit profitability improvements and direct revenue gains.
  
• The risk of continued outflows in high-margin products like Alternatives and multi-asset funds, partly countered by adversities in market conditions, may affect revenue and profit margins.
  
• The company's significant reliance on market performance in Passive investments and infrastructure products exposes it to fluctuations that could impact overall earnings.
  
• Exchange rate volatility, particularly EUR and USD, creates uncertainty that can unpredictably affect revenue and assets under management.
  
• Increased competition following large-scale mergers in the asset management sector could pressure DWS's market share and, consequently, revenue and profitability.

Valuation

• The analysts have a consensus price target of €44.08 for DWS Group GmbH KGaA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €57.0, and the most bearish reporting a price target of just €38.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €3.1 billion, earnings will come to €899.3 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 5.2%.
• Given the current share price of €41.8, the analyst's price target of €44.08 is 5.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.