JHG - Janus Henderson: This Is Still A Hold Despite Q4 Earnings Beat

Summary

• JHG's Q4 2022 performance was reasonably good, and the growth prospects of its Asian business operations are promising.
• But I have an unfavorable view of Janus Henderson's shareholder capital allocation priorities and its current valuations.
• I make no changes to my Hold investment rating for Janus Henderson's stock, after evaluating both the positives and negatives relating to JHG.

Elevator Pitch

I have a Hold rating for Janus Henderson Group Plc's ( JHG ) shares.

Earlier, I discussed about Janus Henderson's new Global Chief Operating Officer appointment and analyzed the potential for further growth in JHG's Assets Under Management or AUM with my prior October 19, 2021 write-up .

In this article, my attention turns to JHG's recently announced Q4 2022 financial results, the outlook for its Asian business operations, the company's shareholder capital return priorities, and the stock's valuations. My analysis of the above-mentioned factors leads me to the conclusion that the risk-reward for Janus Henderson is fair which warrants a Hold rating.

Decent Set Of Fourth Quarter Results

Janus Henderson issued a media release on February 2, 2023 disclosing the company's financial performance for the final quarter of the prior year. JHG's Q4 2022 financial results were decent and came in above the sell-side analysts' expectations.

Top line for JHG increased slightly by +0.5% QoQ from $512.9 million for the fourth quarter of 2021 to $515.2 million in Q4 2022. This was equivalent to a -26.1% YoY revenue contraction for Q4 2022, which was comparable to the -25.4% YoY top line decline which Janus Henderson experienced in Q3 2022. The market had anticipated that JHG's top line performance for Q4 2022 will be significantly worse as compared to Q3 2022. This wasn't the case, as Janus Henderson's actual Q4 2022 revenue turned out to be +9.4% higher than the sell-side's consensus fourth quarter top line of $470.8 million .

Similarly, JHG also delivered an earnings beat in the recent quarter, on top of achieving above expectations revenue. Janus Henderson's actual Q4 2022 non-GAAP adjusted earnings per share or EPS of $0.61 came in +47.8% better than the analysts' consensus bottom line estimate of $0.41 per share. JHG also registered a normalized EPS of $0.61 for the third quarter of 2022, so the company's bottom line performance didn't deteriorate on a QoQ basis in the most recent quarter.

Janus Henderson's actual Q4 2022 top line and bottom line were positive surprises, thanks to decent AUM growth and good cost control. JHG's AUM expanded by +4.6% from $274.6 billion as of end-Q3 2022 to $287.3 billion as of December 31, 2022, as global financial markets performed better in Q4 2022 as compared to Q3 2022. Separately, JHG revealed at the recent Q4 2022 results briefing on February 2, 2023 that the progress of the company's cost optimization efforts was much faster than what the company had earlier expected, and this was also a factor that boosted Janus Henderson's bottom line.

Asia Is A Key Growth Driver

In the company's Q4 2022 earnings presentation slides , JHG specifically noted that it has added a new "Head of Asia Distribution" to its ranks, and highlighted that new mandate wins in Asia played a significant role in the +35% growth in gross sales for its institutional business last year.

Japanese insurance company, Dai-ichi Life Holdings, Inc ( DLICY ) ( DCNSF ), formerly a shareholder of JHG, remains a "great partner" for Janus Henderson as per the company's management commentary at the most recent quarterly earnings call. Janus Henderson also stressed at its Q4 2022 earnings call that it "got some real opportunities in Japan", and leveraging on Dai-ichi Life's customer is one of the ways to expand more aggressively in the Japanese market.

It is worth noting that Janus Henderson's AUM attributable to Asian clients amounted to $33 billion and only accounted for 11% of JHG's AUM as of end-2022. Considering the existing partnership with Dai-ichi Life and the recent appointment of someone to be in charge of fund distribution for the Asian market, it is reasonable to expect JHG to increase its AUM contribution from Asia in the future.

Spotlight On Future Shareholder Capital Allocation

A key negative surprise for JHG's recent earnings announcement was that the company didn't buy back any shares in Q4 2022 despite having a $200 million share repurchase authorization in place.

In response to an analyst's question about future share buybacks at the Q4 2022 earnings briefing, Janus Henderson clarified that "buybacks are not off the agenda", but it emphasized that "we're pretty excited about some of the things we can do organically and inorganically at the moment." This suggests that JHG's top priority is to allocate capital to investments and M&A (Mergers & Acquisitions).

This has two key potential negative implications. Firstly, JHG will become a relatively less attractive investment candidate for investors focusing on stocks offering high shareholder capital return or buyback yields. Secondly, prioritizing acquisitions over share repurchases increases the risk of potentially engaging in value-destructive M&A deals.

Elevated Valuations

Janus Henderson's share price rose by a substantial 30% in the last three months, and the stock's valuations (source: S&P Capital IQ data) have become much more demanding.

JHG is valued by the market at 14.0 times consensus forward next twelve months' normalized P/E now, and this is way higher than the stock's five-year average forward P/E multiple of 10.0 times. Also, Janus Henderson is currently trading at 7.8 times consensus forward next twelve months' EV/EBITDA, which is above its five-year mean forward EV/EBITDA ratio of 5.8 times.

Closing Thoughts

JHG's shares continue to be rated as a Hold. Janus Henderson's current valuations are unappealing, and the company could potentially return less capital to shareholders via buybacks in the near future. On the other hand, JHG's Q4 2022 financial performance was pretty good, and there are growth opportunities in Asia which it can capitalize on.

For further details see: