Janus Henderson: Return to Positive Flows in 2023 Does Not Remove Janus Henderson’s Long-Term Headwinds

We’ve raised our fair value estimate for Janus Henderson JHG to USD 26 (AUD 39) per share from USD 24 (AUD 37) after updating our valuation model to account for higher levels of assets under management, or AUM, than we had been projecting for the firm at this point in the cycle. Our new fair value estimate implies a price/earnings multiple of 11.8 times our 2023 earnings estimate and 11.1 times our 2024 earnings estimate. For some perspective, during the past five (10) years, the company’s shares have traded at an average of 10.4 (13.3) times trailing earnings.

Despite the positive news from the firm’s first-quarter results, where Janus Henderson produced positive flows for the first time since the third quarter of 2017 and closed out the period with higher levels of AUM than we were anticipating, the firm’s heavier focus on equities means that it will likely continue to generate negative organic AUM growth during 2023-25 (but at a better rate than the negative 6.5% CAGR that the firm reported during 2018-22). We do envision the firm’s flow picture improving gradually over time, with annual organic AUM growth in a negative 3% to positive 2% range during 2023-27. This should lead to total and average AUM increasing at a positive low-single-digit rate on average over the next five years (a period that includes another meaningful equity market correction midway through our forecast period).

With fee compression an ongoing issue for more traditional asset managers like Janus Henderson, we expect the firm to produce a negative 1.3% CAGR for revenue during fiscal 2023-27 (up from negative 4.7% previously). With asset-management firms not only paring back their fees but also spending more to produce better investment results and enhance product distribution, we expect adjusted non-GAAP operating margins to hover between 32% and 34% over our five-year projection period (up from 30% to 32% previously).