Passive Migration And Rising Costs Will Crush Margins

Key Takeaways

• The shift toward passive investing and rise of digital-first competitors are eroding demand, compressing margins, and challenging Jupiter's fee-based business model.
  
• Limited international expansion and regulatory pressures increase operational costs and leave Jupiter exposed to UK-specific risks, further constraining growth and profitability.
  
• Improved investment performance, cost discipline, product innovation, and strategic acquisition are positioning Jupiter for sustained asset growth, competitive strength, and greater earnings resilience.

Catalysts

A publicly owned investment manager.

• The accelerating industry-wide migration from active to passive investment strategies is eroding demand for Jupiter's core active management products, which is likely to structurally stunt AUM growth and drive ongoing margin compression as lower-cost competitors take market share and clients remain fee-sensitive.
  
• Heightened regulatory scrutiny and increasing compliance burden in the UK and Europe are expected to push up operational costs while simultaneously limiting pricing flexibility, putting sustained downward pressure on net margins and long-term profitability for Jupiter.
  
• Persistent fee compression driven by institutional and retail investors' focus on lower costs is set to continue reducing the average fee margin, with recent results already showing a decline to 66 basis points, and this trend is likely to accelerate as Jupiter cannot achieve sufficient scale to offset the loss in revenue.
  
• Jupiter's historical difficulty in consistently expanding internationally, combined with a continuing concentration of assets sourced from the UK-over 75 percent after the CCLA acquisition-will restrain diversification and make the company more vulnerable to geographically-specific market or policy shocks, limiting future revenue growth and stability.
  
• The threat posed by digital-first fintech platforms and automated investment solutions is expected to further disrupt Jupiter's traditional distribution channels, driving up customer acquisition costs and undercutting the firm's ability to sustain higher fee structures, which is likely to weigh on both revenue generation and earnings quality over the long term.

Jupiter Fund Management Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Jupiter Fund Management compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Jupiter Fund Management's revenue will decrease by 1.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.0% today to 14.2% in 3 years time.
• The bearish analysts expect earnings to reach £46.7 million (and earnings per share of £0.09) by about September 2028, down from £58.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 10.7x today. This future PE is lower than the current PE for the GB Capital Markets industry at 12.5x.
• Analysts expect the number of shares outstanding to decline by 2.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.33%, as per the Simply Wall St company report.

Jupiter Fund Management Future Earnings Per Share Growth

Risks

• Jupiter has demonstrated clear improvement in investment performance, with 64% of mutual fund assets under management outperforming peers over three years and nearly half in the first quartile, indicating enhanced product competitiveness that can drive higher client inflows and bolster revenue growth.
  
• The company is experiencing positive momentum in both institutional and retail client flows, with net inflows returning and overall assets under management recovering to over £47 billion, suggesting the potential for sustained AUM growth and related increases in net revenue.
  
• Jupiter's focused cost discipline, including new and ongoing efficiency programs, is driving down operating costs and targeting further savings over 2025 to 2028, which is likely to improve net margins and long-term earnings resilience.
  
• Investment in new products such as active ETFs, GEARx, and expanding into high-demand segments like global equities and systematic strategies are attracting meaningful client interest, positioning Jupiter to capitalize on growth opportunities and support revenue expansion.
  
• The acquisition of CCLA is set to meaningfully increase scale, bring over £15 billion in additional AUM, and create further cost-saving opportunities through integration, which may enhance Jupiter's competitive position and earnings diversification over the long term.

Valuation

• The assumed bearish price target for Jupiter Fund Management is £0.9, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Jupiter Fund Management's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• 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 £0.9.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £329.4 million, earnings will come to £46.7 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 8.3%.
• Given the current share price of £1.18, the bearish analyst price target of £0.9 is 31.6% lower.
• 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.