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  • Earnings
  • disruptive innovation

Why is BlackRock getting set for strong Q4 Revenues?

BlackRock [BLK] looks set to report a 14.9% hike in year-over-year revenues on flat earnings when it reports its fourth quarter figures on 14 January.

According to analysts at Zacks, the world’s largest asset manager is tipped to post revenues of $5.15bn and earnings of $10.15 per share, down by just 0.3% on this time last year.

“Whether through expanding investment choices, developing new retirement solutions, or enhancing our data analytics and technology capabilities, BlackRock remains committed to investing in high growth opportunities and industry-leading innovation,” said Laurence D. Fink (pictured above), chairman and CEO of Blackrock while detailing Q3 results in September.

 

 

ETF Demand

BlackRock is expected to benefit from a continued surge in demand for exchange traded funds (ETFs) as investors increasingly look to passive and thematic investing. As in the third quarter, when its revenues climbed 16%, BlackRock will have been helped by demand for actively managed funds as pandemic market volatility eased, and sustainable investing.

“We believe BlackRock is best positioned on the asset management barbell given its leading iShares ETF platform, multi-asset and alternatives combined with technology offerings that should drive 11% EPS CAGR between 2020 and 2023,” said Michael Cyprys, equity analyst at Morgan Stanley.

Cyprys added that BlackRock’s recent acquisition of peer Aperio also boosts the products it can offer, such as tax optimised investing.

“We believe BlackRock is best positioned on the asset management barbell given its leading iShares ETF platform, multi-asset and alternatives combined with technology offerings that should drive 11% EPS CAGR between 2020 and 2023” - Morgan Stanley equity analyst Michael Cyprys

 

In terms of costs and its impact on margins, Zacks said that BlackRock expects fourth quarter core general and administrative expenses to increase, reflecting seasonal hikes in “marketing spend, additional costs related to return to office planning and ongoing technology costs with latent cloud migrations”.

 

Share Price Boost

The expected fourth quarter performance, as well as lower market volatility as fears of further Covid lockdowns fade, is likely to give BlackRock’s share price another boost. Over the past 12 months, it has climbed 18% to sit at $892 at the close on 7 January.

Cyprys believes that could go higher. “We see further growth ahead for Alts, iShares, international penetration and the institutional market in the US. We expect the premium to widen as BLK takes share in an evolving industry and executes on an improving organic revenue growth trajectory.”

According to Market Screener a consensus of analysts has a Buy rating on the stock, with an average target price of $1,012.

 

Analysts Views

Deutsche Bank recently raised its price target to $1,141 with a ‘buy’ rating. Analyst Brian Bedell, according to The Fly website, says that BlackRock heads into 2022 “even more constructive than at the start of 2021 on the brokers, asset managers and exchanges sector”.

Bank of America also has a ‘buy’ rating and a $1,080 price target. Analyst Craig Siegenthaler sees a “large gap between the organic growth rate of BlackRock over the next five years and its peer group, given BlackRock’s scale advantages, differentiated technology effort and early/first-mover advantages in multiple businesses”. He also likes BlackRock’s $260bn alternatives business, comprising sectors such as private equity and commodities.

BMO Capital recently lowered its price target on the stock, however, from $797 to $794. Analyst James Fotheringham likes its growth potential in areas such as exchange traded funds, its portfolio management software Aladdin and the tailwinds of sustainability, China and the retirement gap.

But as reported by The Fly, although “BlackRock should continue to steal share from the traditional asset management peers, its multiple has limited upside”.

Zacks also has concerns about those high administration costs and the group’s “heavy dependence on overseas revenues”.

However, BlackRock finds itself at the forefront of an asset management industry only going in one direction. According to PricewaterhouseCoopers, global Assets under Management (AuM) will almost double in size by 2025 to $145.4trn.

$145 4trillion

Valuation PricewaterhouseCoopers estimates global Assets under Management to total by 2025

 

It has been difficult for BlackRock and its peers to grow AuM given the pandemic volatility, but with calmer waters this could change in 2022.

The switch from growth to value investing and the variables of higher inflation and interest rates will also call for more asset management expertise.

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