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Robust AUM Balance Aids SEI Investments (SEIC) Amid Cost Woes
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SEI Investments Company's (SEIC - Free Report) global presence, robust assets under management (AUM) balance, strategic buyouts and technological innovations position it well for growth. However, rising expenses and high exposure to fee-based revenues are concerning.
The consistent improvement in SEI Investments’ revenues over the last several years has benefited the company. Notably, for the last five years ((2017-2022), its revenues have witnessed a compound annual growth rate (CAGR) of 5.5%. Moreover, SEIC’s AUM recorded a CAGR of 3.2% over the same time frame, with the uptrend continuing in the first six months of 2023. We expect a CAGR of 4.6% for the company’s AUM by 2025.
In addition, SEIC’s focus on strategic acquisitions to diversify revenues is another positive. The 2021 buyout of Atlas Master Trust and its recent deal to acquire National Pensions Trust to enhance its position in the defined contribution market are likely to support its top-line growth. Our estimates for total revenues indicate a CAGR of 1.8% over the next three years.
SEI Investments has been banking on technology to boost its business. Its primary business platform, Investment Processing, delivers its outsourced software and processing services through TRUST 3000 and the SEI Wealth Platform (SWP). Revenues generated by these two are recognized under information processing and software servicing fees.
Also, SEI Investments' 2021 strategic acquisitions on this front, including Oranj's cloud-native technology platform, Finomial and Novus, and the launch of two key technology enhancements through the SWP — Digital Account Open and Digital Model Management — are a reflection of its initiatives and constant innovations in software. These efforts are likely to enable the company to win new clients and drive its top-line growth.
Although we expect information processing and software servicing fees to decline 13.5% this year, the same is likely to rebound and grow 3.6% and 4.9% in 2024 and 2025, respectively.
Additionally, the company has a strong balance sheet. As of Jun 30, 2023, it had a total debt of $41.3 million, significantly lower than the cash and cash equivalents balance of $777.1 million. Also, its trailing 12-month return on equity (ROE) reflects its superiority in utilizing shareholders’ funds. The company’s ROE of 22.39% compares favorably with 13.61% for the industry.
Additionally, the company's robust balance sheet position and superior return on equity bode well.
In the past month, shares of this Zacks Rank #2 (Buy) company have gained 1.5% compared with no changes for the industry.
Image Source: Zacks Investment Research
However, elevated expenses are likely to hurt SEI Investments’ bottom line in the near term. Given that most of the company’s operations are technology-driven, costs related to the same are expected to continue rising. Also, it expects inflationary pressure on personnel costs to continue in the quarters ahead. Amid this, we estimate a CAGR of 2.2% over the next three years for SEIC’s total expenses.
Further, substantial exposure to fee-based revenues, mainly from asset management, administration and distribution fees (which accounted for 76% of total revenues in 2022) are likely to weigh on the company’s financials in the near term. For 2023, we expect asset management, administration and distribution fees to contribute 78.6% to total revenues.
Other Finance Stocks Worth a Look
A couple of other top-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and T. Rowe Price (TROW - Free Report) .
The Zacks Consensus Estimate for JPMorgan Chase & Co.’s current-year earnings has been revised 8.3% upward over the last 30 days. Its shares have gained 12.9% in the past three months. Currently, JPM sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
T. Rowe Price currently sports a Zacks Rank #1. The consensus mark for the company's 2023 earnings has been revised 6.3% upward over the last 30 days. In the past three months, TROW shares have gained 8%.
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Robust AUM Balance Aids SEI Investments (SEIC) Amid Cost Woes
SEI Investments Company's (SEIC - Free Report) global presence, robust assets under management (AUM) balance, strategic buyouts and technological innovations position it well for growth. However, rising expenses and high exposure to fee-based revenues are concerning.
The consistent improvement in SEI Investments’ revenues over the last several years has benefited the company. Notably, for the last five years ((2017-2022), its revenues have witnessed a compound annual growth rate (CAGR) of 5.5%. Moreover, SEIC’s AUM recorded a CAGR of 3.2% over the same time frame, with the uptrend continuing in the first six months of 2023. We expect a CAGR of 4.6% for the company’s AUM by 2025.
In addition, SEIC’s focus on strategic acquisitions to diversify revenues is another positive. The 2021 buyout of Atlas Master Trust and its recent deal to acquire National Pensions Trust to enhance its position in the defined contribution market are likely to support its top-line growth. Our estimates for total revenues indicate a CAGR of 1.8% over the next three years.
SEI Investments has been banking on technology to boost its business. Its primary business platform, Investment Processing, delivers its outsourced software and processing services through TRUST 3000 and the SEI Wealth Platform (SWP). Revenues generated by these two are recognized under information processing and software servicing fees.
Also, SEI Investments' 2021 strategic acquisitions on this front, including Oranj's cloud-native technology platform, Finomial and Novus, and the launch of two key technology enhancements through the SWP — Digital Account Open and Digital Model Management — are a reflection of its initiatives and constant innovations in software. These efforts are likely to enable the company to win new clients and drive its top-line growth.
Although we expect information processing and software servicing fees to decline 13.5% this year, the same is likely to rebound and grow 3.6% and 4.9% in 2024 and 2025, respectively.
Additionally, the company has a strong balance sheet. As of Jun 30, 2023, it had a total debt of $41.3 million, significantly lower than the cash and cash equivalents balance of $777.1 million. Also, its trailing 12-month return on equity (ROE) reflects its superiority in utilizing shareholders’ funds. The company’s ROE of 22.39% compares favorably with 13.61% for the industry.
Additionally, the company's robust balance sheet position and superior return on equity bode well.
In the past month, shares of this Zacks Rank #2 (Buy) company have gained 1.5% compared with no changes for the industry.
Image Source: Zacks Investment Research
However, elevated expenses are likely to hurt SEI Investments’ bottom line in the near term. Given that most of the company’s operations are technology-driven, costs related to the same are expected to continue rising. Also, it expects inflationary pressure on personnel costs to continue in the quarters ahead. Amid this, we estimate a CAGR of 2.2% over the next three years for SEIC’s total expenses.
Further, substantial exposure to fee-based revenues, mainly from asset management, administration and distribution fees (which accounted for 76% of total revenues in 2022) are likely to weigh on the company’s financials in the near term. For 2023, we expect asset management, administration and distribution fees to contribute 78.6% to total revenues.
Other Finance Stocks Worth a Look
A couple of other top-ranked stocks from the finance space are JPMorgan Chase & Co. (JPM - Free Report) and T. Rowe Price (TROW - Free Report) .
The Zacks Consensus Estimate for JPMorgan Chase & Co.’s current-year earnings has been revised 8.3% upward over the last 30 days. Its shares have gained 12.9% in the past three months. Currently, JPM sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
T. Rowe Price currently sports a Zacks Rank #1. The consensus mark for the company's 2023 earnings has been revised 6.3% upward over the last 30 days. In the past three months, TROW shares have gained 8%.