The Charles Schwab Corporation

SCHW Details

The Charles Schwab Corporation (NYSE: SCHW) is a savings and loan holding company and provides, with the help of its subsidiaries, wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. As of March 31, 2021, SCHW had 31.90 million active brokerage accounts, 2.1 million corporate retirement plan participants, 1.6 million banking accounts, and approximately USD 7.07 trillion in client assets, making it one of the leading providers of financial services in the U.S. The company generates revenues from various streams such as net interest revenue, asset management, and administration fees, trading revenue, and bank deposit account fees. As of June 15, 2021, its market capitalization stood at USD 135.83 billion.

Launched Schwab International Dividend Equity ETF (SCHY): On April 29, 2021, Schwab Asset Management, a division of The Charles Schwab Corporation, announced the launch of SCHY, trading on the NYSEARCA. This ETF offers international dividend equities with a low operating expense ratio (OER) of 0.14%. The ETF benchmarks total return Dow Jones International Dividend 100 Index and is the 26th ETF managed by Schwab Asset Management.

Q1FY21 Results: The company reported a steep increase of 80.16% in total net revenues to USD 4,715 million in Q1FY21 (ending March 31, 2021) as compared to USD 2,617 million in Q1FY20 (ending March 31, 2020), primarily due to the acquisition of TD Ameritrade, increase in new client brokerage accounts and net new client assets. Net income rose to USD 1,484 million in Q1FY21 from USD 795 million in Q1FY20. The company opened 3.2 million new brokerage accounts during the quarter, more than the total accounts opened in FY20, and daily average trades (DATs) rose 45% sequentially to 8.41 million. The company’s revenue per trade increased 20% to USD 2.37 in Q1FY21 from USD 1.97 in Q1FY20.

Key Risks: The company is highly dependent on the client’s cash balances to generate revenues. The cash waiting for investment in the client’s brokerage accounts is carried to the banking subsidiaries for the extending loans or acquisitions of other investment securities. Any significant reduction in clients’ allocation to cash could affect the company’s income.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

SCHW Daily Technical Chart

Stock Recommendation: SCHW’s share price has surged 109.02% in the past nine months and is currently trading in the higher band of the 52-week range of USD 31.63 to USD 76.37. The stock is currently trading far above its 200 DMA levels. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 61.37. Considering the significant increase, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 72.54, up by 0.74% as of June 15, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

The Blackstone Group Inc.

BX Details

The Blackstone Group Inc. (NYSE: BX) is a leading investment management company globally and offers various investment funds focused on real estate, private equity, public debt, growth equity, non-investment grade credit, real assets, and secondary funds. The company earns revenues from management and advisory fees, incentive fees, investment income, and interest and dividend revenues. As of March 31, 2021, the company’s total assets under management (AUM) were USD 648.80 billion. As of June 15, 2021, the company’s market capitalization stood at USD 114.29 billion.

AUM Growth (Source: Earnings Press Release, April 22, 2021)

Acquisition of Higher Education Technology Company: On June 14, 2021, the company and another American investment firm, Vista Equity Partners (Vista), announced the acquisition of Ellucian, a provider of higher education technology solutions. Vista and BX are looking to invest in Ellucian for a longer time horizon than traditional private equity tenures. However, the financial terms of the transaction were not yet released.

Q1FY21 Results: The company reported a steep increase in total revenue to USD 5,298.87 million in Q1FY21 (ending March 31, 2021) compared to the loss of revenue of USD 3,075.96 million in Q1FY20 (which was due to unrealized investment loss). In addition, the company reported a rise in net income to USD 3,371.13 million in Q1FY21 compared to the net loss of USD 2,607.15 million in Q1FY20. The company’s total AUM at the end of Q1FY21 was USD 648.80 billion, 4.88% higher than USD 618.60 billion at the end of Q4FY20.

Key Risks: Given the nature of its business, the company and its investment management business are subject to extensive federal and state regulation, both within and outside the US. Historically, these laws have been augmented or amended substantially and can change at any time in the future, affecting the company's business and results of operations. Among other potential adverse effects, rising interest rates can result in decreased liquidity, and increased volatility in the markets and could negatively impact the performance of and revenue from the company’s products and strategies.

Valuation Methodology: Price/Earnings per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BX Daily Technical Chart

Stock Recommendation: BX’s share price has surged by 82.93% in the past nine months. The stock is currently trading far above its 200 DMA levels. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 82.67. Considering the significant increase in the stock price, we feel the present share price adequately reflects the robust business fundamentals and choose to remain on the sidelines. Hence, we recommend an “Expensive” rating on the stock at the closing price of USD 97.32, up by 1.79% as of June 15, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Artisan Partners Asset Management Inc.

APAM Details

Artisan Partners Asset Management Inc. (NYSE: APAM) is an investment management firm focused on providing numerous active investment strategies to its clients globally. As of March 31, 2021, the company has nine autonomous investment management teams handling a total of 20 investment strategies across multiple asset classes and investment styles. The company’s average Asset Under Management (AUM) stood at USD 162.90 billion at the end of Q1FY21. In addition, 78% of its AUM was managed for investors domiciled in the U.S., while the rest of the AUM was managed for investors domiciled outside the U.S. As of June 15, 2021, the company’s market capitalization stood at USD 4.25 billion.

China Post-Venture strategy: On March 01, 2021, the company introduced the Artisan China Post-Venture Strategy. Its performance began on April 01, 2021. The investment universe consists of small and midcap public and private companies in Greater China. This new strategy will be handled by Tiffany Hsiao, CFA, who has got 19 years of investment experience to fulfill the current company requirements.

Q1FY21 Results: The company reported a significant increase of 43.30% in total revenues to USD 290.67 million in Q1FY21 (ending March 31, 2021) compared to USD 202.83 million in Q1FY20, primarily due to an increase in average AUM. The company’s net income before non-controlling interest increased by 1.39x YoY to USD 104.61 million in Q1FY21 compared to USD 43.64 million in Q1FY20. The company’s average AUM at the end of Q1FY21 was USD 162.90 billion, 12.34% higher than USD 145.00 billion at the end of Q4FY20.

Financial Performance USD million (Source: Earnings Presentation, Q1FY21)

Key Risks: The biggest assets for any asset management company are the investment professional and management teams. Therefore, the loss of any key investment professional or senior member from the distribution or management teams could have a material impact on the company’s operational affairs. In addition, any changes in the compensation structure could also cause instability within the team, which impacts the company's long-term growth.

Valuation Methodology: Price/Earnings per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

APAM Daily Technical Chart

Stock Recommendation: APAM’s share price has surged by 74.62% in the past twelve months and is currently trading at a higher band of the 52-week range of USD 28.78 to USD 57.65. The stock is currently trading far above its 200 DMA levels. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 49.52. Considering the significant increase in the stock price in the past twelve months, efficiency due to new strategies, associated risks, and current valuation, we recommend a "Watch” rating on the stock at the closing price of USD 53.75, down by 0.06% as of June 15, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.