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SEI Investments (SEIC) Gains From Buyouts Despite Cost Woes
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SEI Investments’ (SEIC - Free Report) global presence, solid assets under management (AUM) balance, strategic acquisitions and technological innovations place it well for growth. However, rising expenses and high exposure to fee-based revenues are headwinds.
The steady improvement in SEIC’s revenues over the last several years is impressive. The metric witnessed a compound annual growth rate (CAGR) of 5.5% for the five years ended 2022. Over the same time frame, AUM recorded a CAGR of 3.2%. The company’s diversified products and revenue mix, a strong global presence and solid AUM balance reflect improving prospects.
Further, SEI Investments has been expanding through acquisitions. Last year, it acquired Altigo to expand in the alternatives investment space and National Pensions Trust, which will enhance its position in the defined contribution market. These, along with several past buyouts, are expected to support top-line and AUM growth.
Our estimates for total revenues and total AUM suggest a CAGR of 0.4% and 3.2%, respectively, by 2025.
SEI Investments heavily depends on technology to support its operations. 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, its 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 initiatives and constant innovations in software will likely help SEI Investments win new clients and thus support revenues. Though we expect information processing and software servicing fees to decline 15.8% in 2023, the metric is anticipated to increase almost 1% and 4.5% for 2024 and 2025, respectively.
In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 9.1% compared with the industry’s rally of 16.1%.
Image Source: Zacks Investment Research
However, elevated expenses are likely to hurt SEI Investments’ bottom-line growth. The metric witnessed a CAGR of 6.1% over the last five years (2017-2022). 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. Our estimates for total expenses suggest a CAGR of 1.6% by 2025.
Further, substantial exposure to fee-based revenues, mainly from asset management, administration and distribution fees (which accounted for 76% of total revenues in 2022), is likely to weigh on the company’s financials in the near term. For 2023, we expect asset management, administration and distribution fees to contribute 78.9% to total revenues.
Stocks Worth a Look
A couple of better-ranked stocks from the investment management space are Prospect Capital Corporation (PSEC - Free Report) and Janus Henderson Group plc (JHG - Free Report) .
The Zacks Consensus Estimate for Prospect Capital’s earnings fiscal 2024 has been revised 8.1% upward over the past 60 days. Its shares have gained 2.9% in the past three months. Currently, PSEC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Janus Henderson currently carries a Zacks Rank #2 (Buy). The consensus estimate for the company's 2023 earnings has been revised 1.3% upward over the past 60 days. In the past three months, JHG shares have gained 17.5%.
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SEI Investments (SEIC) Gains From Buyouts Despite Cost Woes
SEI Investments’ (SEIC - Free Report) global presence, solid assets under management (AUM) balance, strategic acquisitions and technological innovations place it well for growth. However, rising expenses and high exposure to fee-based revenues are headwinds.
The steady improvement in SEIC’s revenues over the last several years is impressive. The metric witnessed a compound annual growth rate (CAGR) of 5.5% for the five years ended 2022. Over the same time frame, AUM recorded a CAGR of 3.2%. The company’s diversified products and revenue mix, a strong global presence and solid AUM balance reflect improving prospects.
Further, SEI Investments has been expanding through acquisitions. Last year, it acquired Altigo to expand in the alternatives investment space and National Pensions Trust, which will enhance its position in the defined contribution market. These, along with several past buyouts, are expected to support top-line and AUM growth.
Our estimates for total revenues and total AUM suggest a CAGR of 0.4% and 3.2%, respectively, by 2025.
SEI Investments heavily depends on technology to support its operations. 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, its 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 initiatives and constant innovations in software will likely help SEI Investments win new clients and thus support revenues. Though we expect information processing and software servicing fees to decline 15.8% in 2023, the metric is anticipated to increase almost 1% and 4.5% for 2024 and 2025, respectively.
In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 9.1% compared with the industry’s rally of 16.1%.
Image Source: Zacks Investment Research
However, elevated expenses are likely to hurt SEI Investments’ bottom-line growth. The metric witnessed a CAGR of 6.1% over the last five years (2017-2022). 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. Our estimates for total expenses suggest a CAGR of 1.6% by 2025.
Further, substantial exposure to fee-based revenues, mainly from asset management, administration and distribution fees (which accounted for 76% of total revenues in 2022), is likely to weigh on the company’s financials in the near term. For 2023, we expect asset management, administration and distribution fees to contribute 78.9% to total revenues.
Stocks Worth a Look
A couple of better-ranked stocks from the investment management space are Prospect Capital Corporation (PSEC - Free Report) and Janus Henderson Group plc (JHG - Free Report) .
The Zacks Consensus Estimate for Prospect Capital’s earnings fiscal 2024 has been revised 8.1% upward over the past 60 days. Its shares have gained 2.9% in the past three months. Currently, PSEC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Janus Henderson currently carries a Zacks Rank #2 (Buy). The consensus estimate for the company's 2023 earnings has been revised 1.3% upward over the past 60 days. In the past three months, JHG shares have gained 17.5%.