Invesco Ltd. ( IVZ Quick Quote IVZ - Free Report) has been witnessing steady revenue growth and a continued increase in assets under management (AUM) balance. However, escalating expenses and high debt levels are major near-term concerns.
Invesco’s top-line growth looks impressive. Net revenues witnessed a six-year (2014-2019) CAGR of 4.1%, with the momentum continuing in first-half 2020. This was mainly driven by the company’s solid AUM balance and the OppenheimerFunds buyout. Given a robust institutional pipeline, solid retail channel and synergies from opportunistic acquisitions, revenues will continue to grow in the quarters ahead.
Further, Invesco has been witnessing a continued rise in its AUM balance. Though total AUM declined in 2018 and in the first six months of 2020 on market volatility, the same witnessed a CAGR of 9.1% over the last six years (2014-2019). The acquisition of OppenheimerFunds resulted in a rise in Invesco’s AUM, making it one of the leading global asset managers.
However, Invesco’s operating expenses have escalated at a four-year (2016-2019) CAGR of 14%, with the trend continuing in the first two quarters of 2020 as well. Rise in compensation costs are the primary reasons for this upswing. Operating expenses are likely to keep rising in the upcoming quarters, given the company’s inorganic growth initiatives and investment in franchise.
Moreover, the company’s high debt level is a concern. As of Jun 30, 2020, Invesco had total debt of $8.7 billion, which is significantly higher than the cash and cash equivalents balance of $1.3 billion. Further, its times-interest-earned ratio has been declining for the past few quarters. Such high debt levels can put the company in a relatively disadvantageous position if the economic situation worsens.
Further, the Zacks Consensus Estimate for 2020 and 2021 earnings has been revised 2.5% and marginally downward, respectively, over the past month. Also, shares of this Zacks Rank #3 (Hold) company have depreciated 40.6% in the year so far compared with the 2% decline recorded by the
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