ETFs Drive Growth At BlackRock

2/25/2013


  Recent Price
$244
  Dividend
$6.72
  Yield
2.8%
  P/E Ratio
18
  Shares (millions)
175
  Long-Term Debt as % of Capital
24%
  52-Week Price Range
$247.00 - $160.25

BlackRock's ($244; BLK) iShares family of exchange-traded funds (ETFs) collected 32% of global inflows last year and accounted for 41% of the world's ETF assets, maintaining its No. 1 market share.

ETFs as a whole and iShares in particular got off to a strong start in 2013. ETFs saw net inflows of more than $28 billion in January on the heels of nearly $38 billion in December, accounting for the largest two-month total in history. iShares garnered 44% of January ETF inflows.

Accounting for less than 10% of the assets in U.S. mutual funds, ETFs still have plenty of room for growth. BlackRock CEO Larry Fink says he sees a "secular shift to passive investing in the ETFs." BlackRock does a lot more than ETFs, but iShares assets under management jumped 27% last year, and ETFs remain the company's strongest growth engine. BlackRock was added to the Buy List and Long-Term Buy List in the Feb. 18 issue.

Business breakdown

Last year, BlackRock earned $13.68 per share excluding special items, up 15%. Credit the growth to 3% higher revenue, aggressive stock buybacks that reduced the share count by 5%, and a boost in net profit margins to 26.1% from 24.7%. Growth accelerated in the second half of the year.

Fees for investment advice, account administration, and securities lending accounted for 86% of 2012 revenue. Performance fees — extra compensation for topping preset targets — generated nearly 5% of revenue. BlackRock Solutions, a business that provides risk management and other services to institutional clients, accounted for nearly 6%.

Assets under management rose 8% for the year to a record $3.79 trillion. Nearly two-thirds of those dollars are managed for institutional accounts, with 25% of total assets actively managed and 41% in index funds.

The iShares family of exchange-traded funds (22%) and retail accounts (12%) round out the rest of BlackRock's assets under management. While retail accounts comprise the smallest chunk of assets, they generated more than one-third of BlackRock's $7.71 billion in base fees for the year. Retail fees totaled 0.65% of assets under management, versus 0.20% for actively managed institutional accounts.

Stock funds captured 97% of total new ETF money in January, but over the long haul fixed income may offer superior growth potential. Assets in fixed-income ETFs rose at an annualized rate of 57% over the last decade but still account for just 0.3% of the global bond market. BlackRock says it is jumping into portions of the bond market that large investment banks have vacated, opening new avenues for growth.

Conclusion

The consensus projects per-share profits will rise 13% in both 2013 and 2014. Both estimates have risen at least 3.4% over the last 30 days. In January, the company raised its quarterly dividend 12%. At 18 times trailing earnings, BlackRock trades at a premium to its peer group well justified by its superior growth potential, and at a 18% discount to its five-year average P/E ratio. An annual report for BlackRock Inc. is available at 55 E. 52nd St., New York, NY 10055, (212) 810-5300, www2.blackrock.com. 

BLACKROCK
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '12
3.96
vs.
3.06
14%
209.91
-
175.49
16 - 14
Sep '12
3.47
vs.
2.83
14%
185.46
-
163.85
15 - 13
Jun '12
3.10
vs.
3.00
- 5%
209.37
-
160.25
17 - 13
Mar '12
3.16
vs.
2.96
- 1%
208.69
-
175.18
18 - 15
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
9.33
13.68
6.00
209.91
-
160.25
15 - 12
2011
9.08
11.85
5.50
209.77
-
137.00
18 - 12
2010
8.61
10.94
4.00
243.80
-
138.42
22 - 13
2009
4.70
7.13
3.12
241.66
-
88.91
34 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
87
51
84
86
96
90

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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