Company Overview: Janus Henderson Group PLC is an independent global asset manager. The Company specializes in active investment across all asset classes. It operates through the investment management business segment. It manages a broad range of investment products for institutional and retail investors across five capabilities: Equities, Quantitative Equities, Fixed Income, Multi-Asset and Alternatives. It operates across various product lines, distribution channels and geographic regions. Its regional focus includes United States, Europe, Asia and Australia.


JHG Details

Decent Performance Witnessed in Q2 FY19 Results: Janus Henderson Group plc (ASX: JHG) happens to be an independent global asset manager which specializes in the active investment throughout all the major asset classes. Recently, the company released its 2Q FY19 results for the period ended June 30, 2019. In 2Q FY19, net income attributable to JHG amounted to US$109.4 million as compared to US$94.1 million in 1Q FY19 and US$140.6 million in 2Q FY18. The Chief Executive Officer (or CEO) of Janus Henderson Group plc named Dick Weil stated that the investment performance and financial results in 2Q and over the longer periods are favourable. Moreover, the company is witnessing improving trends across many areas of the business, however, the current concentration of outflows has been masking much of the progress. It was stated that 2Q FY19 adjusted revenue which amounted to US$434.4 million witnessed improvement from 1Q FY19 adjusted revenue of US$417.4 million mainly because of higher average AUM and improved performance fees.


Key Numbers (Source: Company Reports)

With respect to 2Q FY19, the company stated that the long-term investment performance happens to be robust and 72% and 80% of the AUM has been outperforming the benchmarks on a three and five-year basis, respectively, as of June 30, 2019. The company’s AUM witnessed a rise and stood at $359.8 billion, showing a rise of 9.5% from the year ended December 31, 2018, because of the positive markets and was partially offset by the net outflows. With respect to the dividends, on July 30, 2019, the company’s Board declared an unfranked dividend of US$0.36 per share for 2Q FY19. Also, during the quarter ended June 30, 2019, the company acquired 3,507,049 shares of its common stock for the total consideration of $75.2 million. At the current market price of A$27.540, the stock of the company is trading at 11.33x of FY20E EPS.

Over the past few years, the dividend per share of the company has improved, which might help it gaining traction among the market players moving forward. Additionally, the company has been focusing on developing new growth initiatives. In order to enhance overall efficiency, the company is working towards the continued development of portfolio management and risk management tools. Based on the foregoing, we have applied a relative valuation method, P/E multiple, and have arrived at the target price upside of lower-double digit growth (in % terms).
 

Top 10 Shareholders: The following table provides a broader idea of the top 10 shareholders in Janus Henderson Group plc:


Top 10 Shareholders (Source: Thomson Reuters)

Net Margins Higher Than Industry Median: The company’s net margin at the end of the June 2019 stood at 21%, which is higher than the industry median of 18.4% and, thus, it can be said that JHG is possessing better capabilities to convert its top-line into the bottom-line as compared to the industry. However, at the end of June 2019, the company’s operating margin stood at 22.1%. ROE and ROIC stood at 2.3% and 1.8%, respectively in Q2FY19. The company’s Debt/Equity ratio stood at 0.07x at the end of June 2019, which is lower than the industry median of 0.48x and, therefore, it can be said that its balance sheet is more deleveraged as compared to the broader industry. The deleveraged balance sheet is generally considered positive for the company as it reduces its commitments.  Also, the percentage of long-term debt to total capital of the company stood at 6%, which is lower than the 19.5% and, thus, it looks like that the company’s exposure to long-term debt is lesser than the industry median.


Key Metrics (Source: Thomson Reuters)

Update on Share Buyback Programme: The company has recently made an announcement that, on August 28, 2019, it purchased the CHESS Depositary Interests (or CDIs) to be converted into a holding of shares for the cancellation. The following picture provides a brief overview in this regard:


Number of CDIs Purchased (Source: Company Reports)

A Look at JHG’s Revenues: It was stated that the revenue mainly consists of the management fees and performance fees. The company’s revenue for 2Q FY19 amounted to $535.9 million, which reflects a fall of $56.5 million (or 10%) from 2Q FY18. The decrease was mainly because of a decrease in management fees due to lower gross fee margins and a decrease in the average AUM, during 2Q FY 2019 as compared to the same period in 2018. The following picture provides a broader overview of the company’s total adjusted revenue:


2Q19 Adjusted Revenue Drivers (Source: Company Reports)

As can be seen from the above table, the management fees have witnessed an increase of 1% in 2Q FY19 as compared to 1Q FY19, mainly driven by higher average assets. Also, there has been a significant improvement in the performance fees (as visible in the above table), driven by fees from segregated mandates and improved mutual fund performance fees.

Decent Declaration of Dividends Might Attract Attention: It was stated that the payment of cash dividends happens to be within the discretion of the company’s Board of Directors and depends upon many factors like the results of operations, financial condition, capital requirements, and general business conditions and legal requirements. On July 30, 2019, the company’s Board of Directors has declared an unfranked cash dividend amounting to $0.36 per share which was paid on 28 August 2019. As part of US$200 million on-market buyback programme, which was approved by the Board in the month of February, the company purchased around 3.5 million of the ordinary shares on the NYSE and its CHESS Depositary Interests (or CDIs) on ASX in 2Q FY19, involving total outlay amounting to US$75 million. The following picture provides an idea of the quarterly capital return from 3Q FY17 to 2Q FY19:


Quarterly capital return (Source: Company Reports)

As can be seen from the above chart, the company has been declaring dividend per share amounting to $0.36 per share from the past few quarters and, thus, it can be said that the company is possessing a decent fundamental position. The stability in the dividends might attract the attention of the dividend-seeking investors moving forward. At CMP of A$27.540, the company has an annual dividend yield of 7.48%, which is higher than the industry median of 4.5%, representing more income for its shareholders.


Key Valuation Metrics (Source: Thomson Reuters)

What to Expect from JHG Moving Forward: To achieve its business objectives, the company is currently focussing on its strategic priorities, i.e., (1) quality and stability of the investment performance, (2) standardising the global model and modernise the infrastructure, and (3) developing new growth initiatives.

The company has been focusing on the product portfolio and standardising the global operating model and systems. The company is also working on streamlining and reducing operational complexity. The company stated that its outlook happens to be encouraging, and it is gaining market share in the US Equities in the US retail channel. With respect to financial strength, the company stated that the robust cash flow generation and balance sheet is supporting its ongoing investments in the business to meet the evolving needs of the clients. The company also focuses on returning the excess cash to the shareholders with the help of dividends and share repurchases. As mentioned earlier, the company’s AUM as at June 30, 2019, stood at US$359.8 billion and, out of this, US$195.7 billion relates to North America while US$108.3 billion is related to the EMEA & LatAm. However, US$55.8 billion is related to the Asia Pacific region. The following picture might be helpful in this regard:


Assets under management (Source: Company Reports)

Valuation Methodology: PE- Based Valuation Approach

PE- Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

(Note: All forecasted figures and peers have been taken from Thomson Reuters)


Historical PE Band (Source: Thomson Reuters)

Stock Recommendation: The share price of Janus Henderson Group plc has witnessed a fall of 11.99% in the span of previous three months while, in the time frame of past six months, it has fallen 21.53%. As per ASX, the stock price is trading towards its 52-week lower levels of $26.11, indicating a decent opportunity for accumulation. Additionally, the company’s capital structure, together with the available cash balances, cash flows generated from the operations, and further capital and credit market activities, provides it with sufficient resources in order to meet present and future cash needs, which includes operating and other obligations as they fall due and anticipated future requirements of capital.

The company is of the view that existing cash and cash from operations might be sufficient to satisfy the short-term capital requirements. The company might utilise the available cash for other general corporate purposes and acquisitions. Based on the foregoing, we have applied a relative valuation method, P/E multiple and have arrived at the target price upside of lower-double digit growth (in % terms).  Hence, in view of aforesaid parameters and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$27.540 per share (up 0.879% on 29 August 2019). 
 

 
JHG Daily Technical Chart (Source: Thomson Reuters)

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