Fee Compression And Rising Costs Will Erode Asset Management Value

Key Takeaways

• Ongoing client outflows, industry fee compression, and rising preference for passive products threaten Jupiter's revenue growth and long-term earnings outlook.
  
• Integration and regulatory costs, plus shifting client preferences, could limit profitability and operational efficiency despite efforts to launch higher-fee products.
  
• Improved investment performance, cost efficiencies, business diversification, and successful new product launches position Jupiter for enhanced revenue growth and greater operational resilience.

Catalysts

A publicly owned investment manager.

• Ongoing outflows from retail clients, coupled with only modest net inflows from institutional clients, suggest continued pressure on overall assets under management despite recent improvements. If the broader industry trend toward lower-cost passive vehicles and ETFs accelerates, this could lead to sustained AUM declines, adversely impacting Jupiter's long-term revenue and earnings growth.
  
• The persistently declining average fee margin-now forecasted to remain at 66bps due to greater reliance on institutional mandates and a broader industry trend toward fee compression-signals that even if AUM stabilizes, revenue growth may struggle to keep pace with expectations, especially as clients demand lower-cost solutions.
  
• Integration costs and execution risk related to the CCLA acquisition introduce medium-term uncertainty, as regulatory and one-off costs may exceed guidance and erode net margins over the next few years, impacting Jupiter's profitability even if top-line growth materializes.
  
• The company's focus on launching actively managed, higher-fee products like active ETFs and absolute return funds may struggle to overcome the secular shift in client demand away from active management, limiting the potential for meaningful improvements in revenue and net margins.
  
• Rising regulatory compliance complexity, stemming from increased disclosure requirements (e.g., ESG, MiFID II), may further pressure operational efficiency, driving structurally higher costs and limiting Jupiter's ability to sustainably grow earnings even if cost-saving initiatives continue.

Jupiter Fund Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jupiter Fund Management's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.0% today to 14.3% in 3 years time.
• Analysts expect earnings to reach £54.8 million (and earnings per share of £0.11) by about August 2028, down from £58.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £70.4 million in earnings, and the most bearish expecting £46.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from 10.7x today. This future PE is greater than the current PE for the GB Capital Markets industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Jupiter Fund Management Future Earnings Per Share Growth

Risks

• The company has demonstrated significant improvement in investment performance, with the percentage of mutual fund AUM outperforming peers rising across 1-, 3-, and 5-year periods; if this trend is sustained, it could bolster net inflows, support revenue growth, and improve long-term earnings.
  
• Jupiter's execution of multi-year cost savings initiatives and ongoing technology investments have resulted in a noticeable reduction in compensation and non-compensation costs, suggesting further improvement in net margins and operational leverage over time.
  
• The acquisition of CCLA will materially increase group scale (adding over £15 billion AUM) and diversify the business, potentially leading to greater economies of scale, higher revenues, and more resilience in earnings.
  
• Positive momentum has emerged in both institutional and retail client net flows, with recent quarters showing a return to net inflows, especially from institutional clients; continued inflows can stabilize or even increase AUM, directly supporting future revenue and profit growth.
  
• Launches of innovative new products, including actively managed ETFs and global equity/alternative strategies, are generating meaningful client interest, potentially enabling Jupiter to tap into growth areas within asset management and diversify fee streams, thus supporting long-term revenue expansion.

Valuation

• The analysts have a consensus price target of £1.186 for Jupiter Fund Management 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 £1.6, and the most bearish reporting a price target of just £0.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £384.1 million, earnings will come to £54.8 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of £1.23, the analyst price target of £1.19 is 3.7% lower. 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.