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This GARP Scores a Perfect 100

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·5 min read
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As I was screening for growth at a reasonable price stocks using the All-in-One Screener, SEI Investments Co. (NASDAQ:SEIC) popped up.

Upon first glance, the stock is appealing as it sports a rare 100 for its GF Score, with high ratings for profitability, growth, financial strength, momentum and GF Value.

This GARP Scores a Perfect 100
This GARP Scores a Perfect 100


The GF Value Line suggests the stock is moderately undervalued currently based on its historical ratios, past financial performance and future earnings projections.

This GARP Scores a Perfect 100
This GARP Scores a Perfect 100

The valuation box also shows strong numbers for both earnings-based and free cash flow-based discounted cash flow values.

This GARP Scores a Perfect 100
This GARP Scores a Perfect 100

SEI Investments was founded in 1968 by Alfred P. West Jr., who is also the chairman and CEO. He owns 15% of the common stock.

The company provides investment processing, management and operations services to financial institutions, asset managers, asset owners and financial advisors in four material segments: private banks, investment advisors, institutional investors and investment managers. SEI also has a minority interest in LSV Asset Management, a value equity asset manager with about $99 billion in assets under management. As of December 2021, SEI (including LSV) manages, administers or advises on over $1.3 trillion in assets.

The Oaks, Pennsylvania-based financial services company's offerings are as follows:

  • Customized investment solutions for home offices and advisors.

  • Cyber protection for today's modern businesses.

  • Enhanced chief investment officer solutions for institutional investment offices.

  • Enterprise operating platform for investment managers.

  • Enterprise wealth management services for private banking organizations.

  • Flexible outsourced business solutions for independent advisors.

  • Outsourced investment management for institutional investors.

  • Personal wealth management for high-net-worth families.


This GARP Scores a Perfect 100
This GARP Scores a Perfect 100

Source: Company's website.

The core business of SEI is to manage the back office of investment management companies. It's a sticky business because once a company chooses a back-office software and service provider, it gets locked in as it is exceedingly difficult to change providers. The revenue generated becomes like an annuity, which is reflected in the predictability rank of 4.5 out of five stars. The company has a pristine balance sheet, which scores 9 out of 10 in financial strength, and is growing decently in the mid-to-upper single digits. The price-earnings ratio is reasonable at just over 13. The company does business globally, though 85% of its revenue is from the U.S.

The company continues to make strategic and tuck-in acquisitions. In November of 2021, SEI announced it purchased Novus Partners, a global portfolio intelligence platform, to broaden its capabilities for large institutional investors. Previously in 2021, the company also disclosed it acquired Finomial, an investor lifecycle management company offering cloud-native financial technology, Oranj, a cloud-native, front-office platform, and Atlas Master Trust, Capitas defined contribution master trust in the U.K. with over 110,000 members.

This GARP Scores a Perfect 100
This GARP Scores a Perfect 100

The company's financial reporting is organized around four operating segments (and one investment segment). The segment and operating income are provided below. All segments are exhibiting strong growth currently.

Business analysis

Revenue

Operating Income

Report Date

12/31/2021

12/31/2020

12/31/2019

12/31/2021

12/31/2020

12/31/2019

Currency

USD

USD

USD

USD

USD

USD

Scale

Thousands

Thousands

Thousands

Thousands

Thousands

Thousands

Private Banks

493,570

455,393

470,276

30,774

8,912

27,140

Investment Advisors

482,949

407,564

403,778

242,615

201,651

195,270

Institutional Investors

343,805

317,627

322,062

175,735

167,718

168,125

Investment Managers

581,157

489,462

440,796

232,502

180,463

158,772

Investments In New Businesses

16,828

14,012

12,973

(36,391)

(38,859)

(16,687)

Total

1,918,309

1,684,058

1,649,885

645,235

519,885

532,620


Source: Mergent.

GuruFocus ranked SEI's growth 10 out of 10, which is arguably quite impressive.

Growth Rank

(* per share data)

Rank: 10 /10

10-Year

5-Year

1-Year

Revenue Growth (%)

9.5

8.5

18.4

EBITDA Growth (%)

9.6

7.8

25.3

Oprt. Income Growth (%)

12.4

9.9

29

EPS w/o NRI Growth (%)

12.8

11.3

27

FCF Growth (%)

12.6

11

47.2

Book Value Growth (%)

8.9

10.1

10.8


Another notable aspect of SEI Investments is its remarkably high return on invested capital, especially since it is an asset-light business.

The weighted average cost of capital is the rate a company is expected to pay on average to all its security holders to finance its assets. In comparison, ROIC measures how well a company generates cash flow relative to the capital it has invested in its business.

This GARP Scores a Perfect 100
This GARP Scores a Perfect 100

As the ROIC has historically eclipsed the WACC, it means value was created while the company grew.

Valuation, dividend and buybacks

Morningstar currently gives SEI Investments a four-star rating and a narrow moat with a $74 fair value. Professional sell-side analysts in general are quite bullish on the stock and expect approximately 15% upside. This is consistent with the GF Value estimate.

This GARP Scores a Perfect 100
This GARP Scores a Perfect 100

Source: CIBC

The company pays a modest but growing dividend of 1.35%. SEI also consistently returns capital to shareholders via stock buybacks.

Ticker

Company

3-Month Share

Buyback Ratio

6-Month Share

Buyback Ratio

1-Year Share Buyback

Ratio

3-Year Share Buyback

Ratio

5-Year Share Buyback

Ratio

10-Year Share

Buyback Ratio

SEIC

SEI Investments

0.61

1.83

3.40

3.40

2.80

2.30


Conclusion

SEI Investments is an excellent GARP stock that is highly rated by GuruFocus for all the right reasons. The due diligence of the financials reveals a solid balance sheet and growth profile.

While the stock could be a worthy addition to any portfolio, the only downside I see is that, given the large asset management side of the business, a bear market or recession could hit it hard as its value is closely tied to the stock market.

This article first appeared on GuruFocus.