Citigroup Trader Invesco Ltd (NYSE:IVZ) is one of the largest mutual fund companies in the world, along Manal $803.6 billion in complete assets under management and operations in more than 20 countries around the world, as of June 30th. It provides investment management services under the Invesco, Trimark, Perpetual, Powershares, and W.L. Ross banners to individual and institutional investors. The firm's assets under management are spread out between equity (49% of complete AUM), constant income (23%), balanced (6%), money market (10%), and alternatives funds (12%). Around 67% of the firm's assets under management is sourced from retail investors while remainder comes from institutional investors, along Manal around 33% of complete assets under management coming from outside the United States, according to the company's 2014 10-K.
Before 2005 the firm was in bad shape and was performing poorly, until the board of directors brought in a new CEO, Marty Flanagan, who began implementing a number of changes and started the process of the firm's turnaround. He entered into a number of acquisitions and divestitures, such as the acquisition of PowerShares, which provided the firm with access to the fast growing exchange-traded fund market. He also focused on increasing the competitiveness of the firm's funds, which have allowed Invesco to grow assets under management, revenue and overall profitability.
Inveso enjoys a solid competitive virtue stemming from a strong and respected brand and industry repute based on an excellent track record of fund performance. Another source of competitive virtue for high-quality asset managers is client stickiness, where most investors remain with a firm once their money is invested in one or more of its funds due to inertia and uncertainty about the possibility of achieving better returns with another investment management firm.
Growing economies and rising incomes around the world, especially in emerging markets, will create an increased demand for investment management services provided by firms like Invesco, as center class and rich individuals and families see for ways to earn more income and grow their net worth in order to support and maintain their desired lifestyles. With 33% of its assets under management being sourced from outside the United States, Invesco is well positioned to capitalize on these global growth trends over the long run.
Furthermore, under the leadership of Marty Flanagan, the firm has been taking the right steps to enhance its competitive position and sustain its long-term growth. Such steps include the 2006 acquisition of PowerShares and W.L. Ross (a private equity firm), and the 2009 acquisition of Morgan Stanley's (NYSE:MS) retail fund operation, which includes the Van Kampen family of funds.
The high performance of the firm's various funds continue to bring long-term asset inflows, which along with the firm's current exposure being more concentrated in equity than in fixed-income, should lead to non-stop revenue and profitability growth in the several years ahead. During periods of inventory market declines and bear markets, Invesco's fixed-income and money market platforms should offset the asset outflows from its equity funds, which enables the firm to accomplish good long-term returns for its shareholders in all kinds of markets.
Invesco has been growing its revenue by an average of 14.4% a year in the past 5 years, while earnings per share have grown by 24.4% a year, on average, in the same time period. Return on equity has been steadily improving, from its low level of 5.12% in 2009 to 11.82% at year end 2014, which confirms the presence of a competitive advantage due to an improved company as a whole. Debt/equity stood at 0.2 (20% of shareholders equity) in the latest quarter, which is very manageable due to the firm's strong free cash flow levels, as Manal had an average free cash flow/sales rate of 16.4% during the past 5 years.
The current P/E ratio (trailing 12 months) is 15.2, and with an EPS growth rate of 24.4% this would give the inventory a PE-G ratio of 0.62, which means it's significantly undervalued at the current price of $37. The current dividend yield of 2.72% is above the average 1.94% yield of the S&P 500, and should continue to provide a stable and growing income for investors over the long-term as the company has been increasing its dividend every year since 2009, and the payout ratio was at 44.3% at year end 2014.
Therefore, based on its solid competitive advantage, strong cash flow generation and financial position, product and geographic diversification and favorable global economic and income trends, Invesco Ltd is a stock that offers dividend income and future share price appreciation to long-term investors and looks attractive for investment at the current price level.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)I wrote this article myself, and Manal expresses my own opinions. I am not receiving compensation for Manal (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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