Invesco Ltd. Annual Valuation – 2014 $IVZ
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Invesco Ltd. (IVZ) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Invesco Ltd. (Invesco) is an investment manager, dedicated to helping investors worldwide achieve their financial objectives. By delivering the combined power of its distinctive investment management capabilities, Invesco provides a comprehensive range of investment strategies and vehicles to its retail, institutional and high-net-worth clients around the world. It seeks to generate investment results, positive net flows, increased AUM and associated revenues. It measure relative investment performance by comparing its investment capabilities to competitors’ products, industry benchmarks and client investment objectives. Generally, distributors, investment advisors and consultants take into consideration longer-term investment performance (e.g., three-year and five-year performance) in their selection of investment products and manager recommendations to their clients, although shorter-term performance may also be an important consideration.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $38.25 |
| MG Value | $58.55 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $27.47 |
| Value Based on 0% Growth | $16.10 |
| Market Implied Growth Rate | 5.84% |
| Net Current Asset Value (NCAV) | -$16.04 |
| PEmg | 20.19 |
| Current Ratio | 1.29 |
| PB Ratio | 2.00 |
Balance Sheet – 3/31/2014
| Current Assets | $5,128,200,000 |
| Current Liabilities | $3,975,700,000 |
| Total Debt | $6,351,400,000 |
| Total Assets | $20,346,300,000 |
| Intangible Assets | $8,071,100,000 |
| Total Liabilities | $12,066,600,000 |
| Outstanding Shares | 432,700,000 |
Earnings Per Share
| 2014 (estimate) | $2.40 |
| 2013 | $1.95 |
| 2012 | $1.49 |
| 2011 | $1.57 |
| 2010 | $1.01 |
| 2009 | $0.77 |
| 2008 | $1.22 |
| 2007 | $1.64 |
| 2006 | $1.20 |
| 2005 | $0.52 |
| 2004 | -$0.83 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $1.89 |
| 2013 | $1.55 |
| 2012 | $1.30 |
| 2011 | $1.22 |
| 2010 | $1.08 |
| 2009 | $1.10 |
Dividend History
IVZ Dividend data by YCharts
Conclusion:
Invesco is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio and the high PEmg ratio, while the Enterprising Investor has concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.08 in 2010 to an estimated $1.89 for 2014.  This level of earnings growth is greater than the market’s implied estimate of 5.84% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Invesco Ltd (IVZ)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in Invesco Ltd (IVZ) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
