BGI deal lifts BlackRock's 4Q

The latest earnings numbers from the world's largest asset manager are broadly in line with our estimates

Greggory Warren, CFA 28 January, 2010 | 11:34AM
Facebook Twitter LinkedIn

BlackRock's fourth-quarter results gave some indication of the impact that last year's acquisition of Barclays Global Investors (BGI) will have on both its top and bottom line as we move through 2010. The combined firms finished the year with a little more than $3.3 trillion in assets under management (AUM), which is about where we had pegged them to finish the year.

Given the impact that the BGI acquisition, which added more than $1.8 trillion in assets to the firm's AUM during the final month of 2009, had on revenue and profitability for both the fourth quarter and the full year, it is somewhat arduous to make any meaningful comparisons with past results. That said, on a reported basis, fourth-quarter revenue increased 45% when compared to the prior year's quarter and 35% over the top-line results for the third quarter of 2009.

Excluding the impact of the BGI acquisition, revenue increased 19% year-over-year and 11% sequentially--a much better reflection of the ongoing strength of BlackRock's core business. For the full year, revenue was down 7% to $4.7 billion, which is just about where we had been pegging 2009 results for the combined firms.

As for profitability, BlackRock finished the year with operating margins at 27.2% of sales, which was lower than the 28%-29% range we had been targeting for 2009 (due to higher compensation and BGI integration costs than we had been projecting). The firm made much of this up with a lower tax rate and better-than-expected income from non-operating assets, which left BlackRock's free cash flow (based on our estimates) about where we had been targeting for the year. As such, we see no reason to alter our $240 fair value estimate at this time.

BlackRock capped off its 10-year anniversary as a publicly traded firm by closing its purchase of BGI, catapulting the firm into the top spot among asset managers. Much as its purchase of Merrill Lynch Investment Managers (MLIM) transformed BlackRock from a fixed income powerhouse into a major player in the asset-management industry, the acquisition of BGI turns BlackRock into a dominant force in both active and passive asset management. The firm's broad diversification among asset classes, heavier distribution in the institutional channel, and geographic reach are the foundation for its wide economic moat. The acquisition of BGI not only broadens BlackRock's product mix and geographic reach but provides it with avenues for growth on the retail side of the business.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Greggory Warren, CFA  Greggory Warren, CFA, is a senior stock analyst with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures