Black rock headquartered in New York City and with a history stretching back to 1988, has emerged as the dominant force in the financial services industry. At the end of the first quarter of 2024, Blackrock managed over $10.5 trillion, cementing its position as the largest asset manager in the world.
The revenue rose 11.4 percent to $4.73 billion compared to $4.24 billion in the corresponding quarter last year. The outcome can be compared with Factset’s analyst consensus, which was $4.65 billion. The biggest contribution behind the increase in revenue was a higher proportion of performance fees and revenue from technology services.
Adjusted Earnings per share were $9.81, which was 4.6 percent better than the analyst consensus of $9.38. Compared to the corresponding quarter last year, the growth corresponds to a whopping 23.7 percent.
The company had total capital inflows of $76 billion in the first quarter, which was below analysts’ expectations of just over $100 billion. Blackrock’s assets under management increased by 15 percent, helped by organic growth and positive market movements.
Black rock like many other asset managers, has a business model with clear economies of scale. Increased volumes in the form of more managed capital require very small cost increases, which increases profitability.
Blackrocks operating margin at the latest quarterly report landed at 35.8 percent, which is one of the highest among US asset managers. It was an increase of 1.9 percentage points compared to the corresponding quarter in 2023.
The what makes Blackrock particularly impressive is its broad product portfolio, which spans different asset classes such as stocks 52 percent, bonds 28 percent, mixed asset classes 9 percent, money market funds 8 percent and alternative investments at 3 percent. It provides a robust platform that can handle different market conditions and customer needs.
Black rock operates with both passive and active investment strategies. Through its ETF platform Ishares and other passive products, Blackrock has managed to attract a significant amount of assets, giving it a large cost advantage in an increasingly competitive industry.
Passive strategies make up around two thirds of the managed assets and here the company is the global market leader with just under a third of the market. Passive strategies take an increasing share of the net flow, which benefits Blackrock’s position as market leader.
At the same time the firm continues to offer active management and niche investment strategies for clients who request it. Analysts estimate that institutions account for 80 percent of the managed capital. This type of customer has traditionally been more stable than private investors.
Black rock has launched funds on the Chinese savings market together with Temasek and China Construction Bank, which is China’s largest bank. A savings market that is predicted to have high growth as the Chinese middle class increases its monthly savings and broadens it to fund savings.
Technology has also played a central role in Blackrock’s success. By investing in advanced analytical tools and platforms like Alladin, the company has been able to improve its investment decisions and customer experience. The technology services business area increased revenue by 11 percent during the quarter.
The analysts who monitor Blackrock expect the sales estimate this year to land at 20,226 million dollars, which is a turnover increase of just over 13 percent. Next year, turnover is expected to continue to increase by roughly 11 percent. In 2026, the estimate is $23,892 million.
The operating result is expected to grow from last year’s 6,275 million dollars to 9,483 million dollars in 2026. That corresponds to an annual growth of 17 percent. The strong development of the operating profit creates a margin expansion. The operating margin is forecast to increase from 35.1 percent to nearly 40 percent in 2026.
In step with growing earnings, the P/E ratio falls from this year’s 18.4 to 15.6 on 2026 earnings forecasts. It is significantly lower than the historical average of the last ten years which is around the P/E ratio of 21 – at its highest it has been closer to 24.8 and the bottom has been reached at 14.1. The valuation is also lower than the average for the S&P 500 index, even though profits are growing faster and with higher margins.
Worth to note is that operating margin and net profit margin are higher than several fast-growing technology companies such as Alphabet and Meta.
The direct return in the share is expected to amount to 2.7 percent and 2.9 percent respectively in the next few years. It is reinforced by the fact that the company carries out share buybacks for just over 300 million dollars per quarter. Blackrock repurchased $375 million of shares in the quarter and the quarterly dividend was raised 2 percent to $5.10 per share.
The risks for Blackrock are several, a weak development on the stock market and reduced interest in savings would directly lead to a slowdown in growth for pre-selected capital. A future cannibalization of client flows from actively managed high-margin products to significantly cheaper low-fee ETF products is another risk factor.
Place like Blackrock which is the market leader with very high margins and relatively low value. In combination with the attractive outlook for the industry, Placera thinks the share is worth buying. This year, the stock has retreated and has not kept up with the rise in the broad US stock index.
For For anyone looking for a long-term foreign investment in the financial industry with a structural tailwind, we think that the fund giant’s share adorns its place in the share portfolio.
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