Tactical Expansions And Innovations Set To Propel Market Share And AUM Growth

Key Takeaways

• SEI's strategic investments and focus on RIA market expansion, platform adoption, and entering new markets are poised to drive future AUM growth and revenue.
  
• Initiatives like fee reductions, launching new investment products, and targeting specific sectors with professional services are aimed at increasing client retention, acquisition, and revenue diversification.
  
• SEI Investments' growth is challenged by competition, regulatory changes, execution risks in new technologies and markets, requiring innovation and market acceptance.

Catalysts

A publicly owned asset management holding company.

• SEI's proactive response to industry headwinds and capitalization on tailwinds, such as consolidation in the intermediary space and public markets seeking access to private markets, are expected to position the company for future growth, impacting revenue growth and market share expansion.
  
• The company's strategic focus on RIA (Registered Investment Advisors) expansion through platform adoption is expected to enhance its competitive position in the RIA market, potentially increasing AUM (Assets Under Management) and driving revenue growth.
  
• SEI's investment in the SEI Access Platform across multiple markets, addressing increased demand from European private asset managers, is projected to be a significant driver of future growth, influencing international market expansion and revenue streams.
  
• The introduction of fee reductions and the launch of new SMAs (Separately Managed Accounts) and ETFs (Exchange-Traded Funds) aimed at increasing client retention and new client acquisition could contribute to AUM growth and diversification of revenue sources.
  
• SEI's engagement in sales with professional services offerings in targeted sectors, like the regional community bank segment and the U.K. private client investment manager segment, suggests an operational strategy geared towards improving operating efficiency for clients. This approach could enhance SEI's value proposition, driving business segment growth and expanding its service revenue.

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 25.4% today to 27.1% in 3 years time.
• Analysts expect earnings to reach $646.6 million (and earnings per share of $5.41) by about October 2027, up from $506.9 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 16.6x on those 2027 earnings, down from 18.4x today. This future PE is lower than the current PE for the US Capital Markets industry at 22.0x.
• Analysts expect the number of shares outstanding to decline by 2.75% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.53%, as per the Simply Wall St company report.

Risks

• SEI's reliance on the continued growth and engagement in the RIA market for strategic opportunities may face challenges due to competition and regulatory changes, potentially impacting revenue from this segment.
  
• Operational and technological investments in alternative assets and international expansion are subject to execution risk and regulatory compliance, possibly affecting IMS revenue growth and margin expansion.
  
• The company's professional services offerings, while contributing to client engagement and sales, require significant expertise for successful execution. Failure to deliver could impact Private Banking revenue and net margins.
  
• Engagement in new ventures and the application of AI across SEI's pillars of expertise involves execution and innovation risks, which could affect the company's ability to improve operating efficiency and harness new technologies, impacting overall revenue and profit growth.
  
• Investments in the SEI Access Platform and venture opportunities are subject to market acceptance and competition, risking the expected future growth and profitability in the investments in the new business segment.

Valuation

• The analysts have a consensus price target of $74.8 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 2027, revenues will be $2.4 billion, earnings will come to $646.6 million, and it would be trading on a PE ratio of 16.6x, assuming you use a discount rate of 6.5%.
• Given the current share price of $71.68, the analyst's price target of $74.8 is 4.2% 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.