MassMutual And Barings Partnership Will Capture Global Market Potential

Key Takeaways

• Strategic partnerships with MassMutual and Barings are set to boost private market offerings, driving asset growth and future revenue expansion.
  
• Regional diversification and ETF innovation bolster Invesco's asset flows, fostering resilient revenue growth despite U.S. market challenges.
  
• Market dynamics, cautious client sentiment, and global trade tensions could hinder growth, affecting Invesco's revenue streams, margins, and asset management performance.

Catalysts

A publicly owned investment manager.

• The new strategic partnership with MassMutual and Barings is expected to deliver differentiated private market products to U.S. wealth management clients, leveraging MassMutual's initial investment and Barings' capabilities. This could drive future revenue growth by expanding Invesco's product offerings and capturing more assets under management in the private credit space.
  
• The $1 billion repurchase of preferred stock will be earnings accretive, boosting EPS by reducing dividend obligations, and repaying the loan over time. This move is expected to enhance net margins and earnings by improving capital efficiency and lowering interest costs.
  
• Invesco's geographic diversity, particularly in the Asia Pacific and EMEA regions, continues to generate positive asset flows, providing a more resilient revenue and profit growth profile. As these markets continue growing, they should support Invesco's overall revenue growth despite challenges in U.S. equity markets.
  
• The partnership with Barings for private market product development is complemented by MassMutual's support with $650 million in seed and co-investment capital, which should expedite the delivery of innovative solutions and positively impact revenue growth from new product pipelines.
  
• Continued innovation and expansion in the ETF space, including the launch of new active ETFs and a successful listing of QQQ on Hong Kong Stock Exchange, should bolster Invesco's asset flows and fee income, supporting future revenue growth and improving net revenue yields.

Invesco Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Invesco's revenue will decrease by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.9% today to 20.0% in 3 years time.
• Analysts expect earnings to reach $971.1 million (and earnings per share of $2.21) by about April 2028, up from $538.0 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 8.4x on those 2028 earnings, down from 11.6x today. This future PE is lower than the current PE for the US Capital Markets industry at 24.1x.
• Analysts expect the number of shares outstanding to decline by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

Invesco Future Earnings Per Share Growth

Risks

• The evolving market dynamics and uncertain market sentiment may hinder new capital deployments, impacting potential revenue growth and net margins.
  
• Challenges related to risk-taking in fundamental fixed income, coupled with a cautious client sentiment, could result in weaker inflows or outflows, affecting operating margins and earnings.
  
• Heightened trade tensions and economic tensions, particularly related to China, pose risks to the domestic Chinese economy and may influence regional revenue streams and asset flows negatively.
  
• The company’s investment focus on short-duration fixed income strategies due to market conditions might not perform well in a rising interest rate environment, impacting yields and operating income.
  
• Competitive pressures in the U.S. equity markets and potential outflows in regions like the U.S., due to strong inflows elsewhere, may limit growth, affecting total assets under management and revenue consistency.

Valuation

• The analysts have a consensus price target of $14.904 for Invesco 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 $19.0, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $971.1 million, and it would be trading on a PE ratio of 8.4x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $13.93, the analyst price target of $14.9 is 6.5% 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.