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BT Investment Signals Growth Options Aplenty

Australia | Apr 12 2017

BT Investment Management justifies its position at the top of the league table, brokers suggest, producing strong inflows in the March quarter.

-Growth driven by fund inflows and positive market movements
-Diversity of growth options, with US expansion ramping up
-Credit Suisse urges caution, given volatile fund flows and equity markets


By Eva Brocklehurst

BT Investment Management ((BTT)) justifies its position at the top of the league table for investment managers, brokers suggest, producing strong inflows in the March quarter.

The company reported March 2017 funds under management of $91.2bn, up 4.8% during the quarter. Growth was driven by fund inflows and positive market movements, slightly offset by foreign exchange, as the Australian dollar strengthened against the British pound and US dollar over the quarter.

The BT Investment Management unit benefited from stronger institutional flows of $1.1bn, offset by wholesale and legacy retail outflows of $200m. The JO Hambro division experienced inflows across all channels in both the UK/Europe and the US, despite a tough industry backdrop.

Overall, both business units produced inflows, with BT Investment Management at $800m and JO Hambro at $1.9bn in the quarter. Credit Suisse upgrades earnings by 1% for FY17 on the back of higher funds under management and increased management fees.

The broker believes the stock justifies its price/earnings premium, as it consistently delivers inflows above its peers and is successfully executing a global expansion. There are options to expand within the US and performance fees are expected to normalise in the outer years from relatively low levels.

Caution is still required, the broker asserts, given volatile fund flows and equity markets as well as challenging operating conditions for asset management.

Inflows were ahead of Morgan Stanley's forecasts and made up for the foreign exchange headwinds. The broker likes the diversity of growth options, which justifies the company's price/earnings ratio at the top end of its peer group.

Morgan Stanley acknowledges some of the flows were in lower margin institutional products. Base fee margin on new inflows for the quarter was 35 basis points versus around 50 basis points in the December quarter.

Institutional inflows made up just over 50% of the total and, within this, BT Investment Management's institutional inflows were driven by a cash mandate, which is typically on around 10 basis points pricing, the broker notes.

Morgan Stanley believes the diversity of growth options underpins an Overweight rating for the stock and, with the US expansion ramping up, this is supporting higher margins. There are growth options in Australia as well, including global equities and in self-managed accounts.

Flows into BT Investment Management continued at a rate above Macquarie's 5% benchmark. The broker notes on a rolling 12-month basis the business has achieved over $7.5bn in net inflows. For the group as a whole the impact of $2.7bn in net inflows in the March quarter means an increase to annualised fee income of $9.7m.

The success the company has enjoyed over multiple periods in net flow performance reflects a combination of attractive investment strategies and successful distribution, Macquarie believes.

FNArena's database shows two Buy and four Hold ratings. The consensus target is $10.65, signalling -3.6% downside to the last share price. Targets range from $9.80 (Ord Minnett, yet to comment on the quarterly) to $11.92 (Macquarie). The dividend yield on FY17 and FY18 forecasts is 4.0% and 4.7% respectively.

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