SEI Investments (SEIC) Rides on Technology & AUM, Costs Rise
SEI Investments Co.'s SEIC robust assets under management (AUM) balance, global presence, strategic acquisitions and technological enhancements poise it well for growth. However, elevated expenses are expected to hurt the company’s bottom line in the near term.
SEI Investments’ revenues witnessed a compound annual growth rate (CAGR) of 5.5% over the last five years (2017-2022), though the top line declined in the first quarter of 2023. Moreover, AUM witnessed a CAGR of 3.2% over the same time frame, with the uptrend continuing in the first quarter. The company’s diversified products and revenue mix, strong global presence, the acquisition of Atlas Master Trust and solid AUM balances reflect improving top-line prospects. Our estimates for total revenues and AUM indicate a CAGR of 1.6% and 5.5%, respectively, by 2025.
Technology is the backbone of SEI Investments’ businesses. The company’s primary business platform, Investment Processing, delivers its outsourced software and processing services through TRUST 3000 and the SEI Wealth Platform (SWP). Revenues generated by these two are recognized under information processing and software servicing fees. While the same recorded a decline in 2019, 2020 and the first quarter of 2023, it witnessed a CAGR of 6.9% between 2017 and 2022.
The company’s 2021 strategic acquisitions, including Oranj's cloud-native technology platform, Finomial and Novus, support its technological advancement efforts. SEIC has launched two key technology enhancements through the SWP — Digital Account Open and Digital Model Management. In 2022, it launched SEI Data Cloud through a strategic partnership with Snowflake to address the financial services industry’s demand for more advanced data integration. These initiatives and constant innovations in software will likely help SEI Investments win clients and, thus, continue to support its top-line growth.
Though we project information processing and software servicing fees to decline 17.8% this year, the same is likely to rebound and grow 4.2% and 5.2% in 2024 and 2025, respectively.
SEI Investments’ partnership interest in LSV Asset Management has been supporting the bottom line. The contribution of LSV to the company’s pre-tax income remained nearly 25% in the last few years. SEI Investments is expected to continue benefiting from its stake in LSV going forward, driven by decent assets inflows.
Further, analysts are optimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for SEIC's 2023 and 2024 earnings has been revised marginally upward over the past 30 days. The company currently carries a Zacks Rank #3 (Hold).
In the past three months, shares of SEIC have gained 6.7% compared with the industry's 9.1% rise.
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However, its expenses witnessed a CAGR of 6.1% over the last five years (2017-2022). The rise was mainly due to an increase in compensation costs, and data processing and computer-related expenses. A similar trend continued in the first quarter of 2023. As SEI Investments' operations are mainly technology-driven, costs related to the same are expected to continue rising. Also, the company expects inflationary pressure on personnel costs to persist. We project total expenses to witness a CAGR of 2% over the next three years.
Asset management, administration and distribution fees are the major revenue generators for SEI Investments. These comprised 76% of total revenues in 2022, 80.6% in 2021 and 79.9% in 2020. Such high dependence on fee-based revenues could adversely impact the company’s financials in the near term as fluctuations in markets and foreign exchange translations and/or regulatory changes might hamper AUM growth. Per our estimates, asset management, administration and distribution fees will decline marginally in 2023.
Finance Stocks Worth a Look
A couple of better-ranked stocks from the finance space are HomeTrust Banshares, Inc. HTBI and JPMorgan Chase & Co. JPM.
The Zacks Consensus Estimate for HomeTrust Banshares’s current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have gained 17.4% in the past month. Currently, HTBI carries a Zacks Rank #2 (Buy).
JPMorgan currently sports a Zacks Rank #1 (Strong Buy). The consensus mark for the company's 2023 earnings has been revised marginally upward over the past seven days. In the past six months, JPM shares have rallied 5.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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