4Q23 result beat, GIP acquisition a transformational deal
- 4Q23 adjusted EPS up 8% y-o-y at US$9.66, beating consensus estimate of US$8.84; annualised organic base fee growth at 6% during Nov-Dec 2023
- The US$12.5b deal to acquire Global Infrastructure Partners (GIP) is expected to be modestly accretive to EPS in the first year
- We think GIP could be a key source of earnings diversification and growth acceleration ahead; Maintain BUY and raise TP to US$900
ETF to lead inflows. 4Q23 adjusted revenue was on par with consensus, up 9% y-o-y to US$4,631m. Adjusted EPS was up 8% y-o-y to US$9.66, beating consensus estimate of US$8.84. Adjusted operating margin was up 40bps y-o-y to 41.6%. Momentum in 4Q23 was strong with US$96b of AUM inflows, largely driven by ETFs’ US$88b inflows. The surge in flows resulted in 6% annualised organic base fee growth. The company also announced to acquire Global Infrastructure Partners (GIP), a leading independent infrastructure asset manager with US$100b of client AUM, at US$12.5b (US$3b cash + c.12m shares). Bayo Ogunlesi, GIP’s founder, will join BlackRock’s board following the closing of transaction. The deal will triple BlackRock’s infrastructure assets and the integrated platform will become 2nd largest infrastructure asset manager globally. This will also double its private markets fees. The company expects the deal to add US$400m of accretive fee-related earnings in the first year.
GIP deal to accelerate growth. We think that the deal would allow the company to double down on fast-growing segment. Private infrastructure is expected to see structural growth driven by (1) growing public deficits, (2) accelerating digitalization of infrastructure, (3) energy transition, and (4) increasing demand from corporations to sell parts of their assets. We expect a smooth integration given (1) the limit overlap in client and investment programs between GIP and BlackRock’s existing infrastructures team, and (2) BlackRock’s strong track record in post-M&A integration. Given the little correlation between infrastructures and other asset classes, we think the deal can be a key source of earnings diversification and growth acceleration, supporting the company to achieve its 5% through-the-cycle organic growth target. Maintain BUY and raise TP to US$900, reflecting an improved fee outlook as investors turn more risk-on and the anticipated accretive earnings from the deal.