BlackRock Inc. (BLK) A Bull Case Theory

We came across a bullish BlackRock Inc. (BLK) thesis on ValueInvestorsClub by cuyler1903. VIC is one of our favorite sites to follow because the ideas are usually posted by aspiring analysts who tend to go an extra mile to write their research. We find the ideas presented on the site well thought out and definitely worth checking. Click here for the full article. Below we summarized the BLK bullish thesis:

Founded in 1988, the NYC-headquartered BLK is the world’s largest multinational investment manager with a hugely diverse AUM of $7.8 trillion. With low capital intensity, the company enjoys high operating margins, free cash flow generation as an all-weather player.

In addition to these admirable attributes, BLK’s Aladdin subsidiary – a rapidly growing risk management software – is probably the world’s most advanced software platform, and seems to be in the early stage of monopolizing the industry. Aladdin has wide-ranging clientele including other investment managers, commercial and central banks, and the largest technology companies.   This downplayed asset is well-positioned to be spun-off as a separate entity altogether to unlock the hidden value therein. If the analyst’s forecast came to fruition, BLK would ultimately have two lucrative mainstream stand-alone businesses – a dominant investment management company, BlackRock and a virtual monopoly subscription software company, Aladdin. The latter would then register a much faster growth independently. With revenues growth in the range of mid-to-high teens, Aladdin could easily see approximately $2 billion of subscription in 2023 from its effectively permanent client base. The spun-off unit might command a valuation of 20x this revenue stream, almost half of BLK’s EV.

BLK has a solid and diversified core business, thanks to well-timed strategic acquisitions over the past two decades. A low-debt company (1xEBITDA), BLK employs low capex, and enjoys a $5.5 billion of cash plus $2.2 billion of long-term investments. A $129 billion of revenues during 3Q2020 (the COVID-19 pandemic), or 7% annualized organic asset growth and 9% annualized organic base fee growth, is testament of dependable business momentum.

Trading around 15x 2022E net income, and a 2.3% yield, BLK is a widely neglected leading well-run franchise. The proven track record of strong revenue and client base expansion, without even including Aladdin’s hidden value, BLK should be able to silence the naysayers, who have always feared a drop in the company’s fees and bottom line. Investors seem to be missing out on rather undervalued dominant name here.