Investments In Data, Cloud, And AI Will Improve Future Client Engagement

Key Takeaways

• SEI's strategic expansion and investment in platforms are expected to drive market share and revenue growth through improved client engagement.
  
• Enhanced operational efficiencies via automation and AI are likely to boost net margins and earnings growth.
  
• SEI Investments faces potential revenue volatility due to nonrecurring sales and services, active mutual fund outflows, and competitive industry pressures.

Catalysts

A publicly owned asset management holding company.

• SEI's strategic focus on expanding market activity, client engagement, and enterprise positioning is expected to increase its share of total addressable markets, driving future revenue growth.
  
• The company is investing in platforms, talent, and market awareness to enhance its value proposition, which should improve client expansion efforts and influence net margins positively.
  
• SEI's increased demand for its data, cloud, and integration transformation services, particularly in its private banking and institutional businesses, could lead to significant revenue growth.
  
• The company's efforts in sales events have been broad-based, targeting traditional and alternative managers, and both new and existing clients, which are likely to support sustainable earnings growth.
  
• SEI's integration enhancements in its cash program and focus on operational automation and AI can lead to improved operational efficiencies, contributing to net margin expansion and earnings growth.

SEI Investments Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SEI Investments's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.6% today to 28.1% in 3 years time.
• Analysts expect earnings to reach $688.8 million (and earnings per share of $5.78) by about January 2028, up from $546.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 19.2x today. This future PE is lower than the current PE for the US Capital Markets industry at 23.2x.
• Analysts expect the number of shares outstanding to decline by 2.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.79%, as per the Simply Wall St company report.

SEI Investments Future Earnings Per Share Growth

Risks

• SEI Investments experienced a strong quarter partly due to one-time sales events that were delayed earlier in the year, which could mean future revenues may not maintain the same growth rate if these events are not repeated. This could impact future revenue consistency.
  
• The success of SEI’s private banking business includes nonrecurring professional services and data offerings, which may not continue with the same high frequency, potentially affecting future revenue streams.
  
• Despite growth in unique business segments, there are headwinds related to active mutual fund outflows, which could restrain overall revenue growth within the advisor business.
  
• Fluctuations and episodic nature in the integrated cash program and one-time performance fees from LSV suggest potential volatility in earnings that might not be stable or consistent over time.
  
• Ongoing industry trends such as consolidation in asset management may create competitive pressure, potentially affecting SEI's market share, revenue, and net margins in the long term.

Valuation

• The analysts have a consensus price target of $85.6 for SEI Investments based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $688.8 million, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 6.8%.
• Given the current share price of $81.18, the analyst's price target of $85.6 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.