Assets under custody or administration grew to $43.3 trillion versus $42.6 billion in the previous quarter and $36.6 in the year-ago period, driven by market appreciation as well as new business wins.
Fee revenue grew 9% from the year-ago period with servicing fees growing 7%. We attribute the bulk of the servicing fee growth to market appreciation with the remainder from net new business partially offset by fee compression. Assets under custody or administration grew 18% to $43.3 trillion with new servicing wins contribution $1.7 trillion, a healthy number in our view. Management fees grew 10% year over year and 4% sequentially. Money market fee waivers continue to be a headwind but appear to be moderating. Charles River Development, which the firm acquired in 2018, saw annualized recurring revenue growth of 12%.
The firm continues to manage expenses well with expenses down 1% sequentially and flat year-over-year excluding notable items and foreign exchange effects. Looking ahead, we think low-single-digit expense growth is more realistic as productivity growth is balanced with the need to invest in its business and some inflationary pressures.
Given the strong business momentum and equity market tailwinds, State Street raised its full-year outlook with just one quarter left. State Street now expects fee revenue to be up 5% for the year with servicing fee growth of 7.5%-8.5%. Net interest income is expected to be in the range of $475 million-$490 million for the fourth quarter, which implies $1.90 billion-$1.91 billion for the full year. The firm’s tax rate is expected to be on the low end of the 17%-19% range.
Company Profile
State Street is a leading provider of financial services, including investment servicing, investment management, and investment research and trading. With approximately $38.8 trillion in assets under custody and administration and $3.5 trillion assets under management as of Dec. 31, 2020, State Street operates globally in more than 100 geographic markets and employs more than 38,000 worldwide
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Alcoa owns 60% and is the manager of the joint venture. Alumina is effectively a forwarding office for AWAC profits. Its profits stem from its equity share in AWAC, less local head office and interest expenses. While AWAC enjoys a low operating cost position relative to its competitors, the cost curve is relatively flat, and competitive pressures exist via supply from China.
Alumina was the result of a demerger of WMC’s aluminium assets in 2003. AWAC has substantial global bauxite reserves and alumina refining operations, many of which are in the lowest quartile of the cost curve. AWAC primarily operates across the first two stages in the aluminium production chain: bauxite mining and alumina refining. AWAC’s refineries are, on average, just inside the lowest quartile of the cost curve. Alumina’s cost-efficient refining operations stem from proximity to bauxite mines and access to cheap power.
Alumina Price Finally Catches Up to Soaring Aluminium Price; No Change to AUD 1.80 FVE
Our fair value estimate for no-moat Alumina is unchanged at AUD 1.80 per share.
AWAC mined 11.1 million tonnes of bauxite and refined 3.1 million tonnes of alumina, both slightly lower than the June 2021 quarter. However, the gross margin on the alumina side rose 8% to USD 55 per tonne as realised pricing strengthened 4% to USD 292 per tonne. But this strengthening is only a prelude to what can be expected in the fourth quarter, with the average alumina price for the first two weeks of October at USD 410 per tonne. This is broadly as we’d expected given alumina has been wildly out of step with its usual synchronisation to the aluminium price. The latter is soaring at around AUD 1.40 per pound, nearly double the fiscal 2020 average.
Our mid cycle alumina price forecast is unchanged at USD 315 per tonne and considered to be a healthy price. The global alumina cost curve is a flat one. We think rising energy costs, increasingly capturing the cost of carbon, and favourable demand trends via light-weighting vehicles and via battery market growth, support a healthy mid cycle alumina price.
Financial Strength
At end 2020, AWAC had USD 361 million in net cash, marginally improved on 2019’s USD 340 million. At the end June 2021, Alumina had just a position of USD 5.7 million in net debt, also marginally improved. Historically, AWAC reinvested heavily in its operations at the expense of dividend growth. We expect the company to remain largely in maintenance mode, with no major projects planned over the foreseeable future. Therefore, AWAC should pay out most if not all of its operating cash flows in the form of a dividend to Alumina Ltd. and Alcoa. This will help to maintain Alumina Ltd.’s strong financial health. We expect AWAC to remain unleveraged and Alumina to remain modestly leveraged at worst.
Bulls Say
- Alumina is a beneficiary of continued global economic growth and increased demand for aluminium via electrification of transport.
- AWAC is a low-cost alumina producer. It has improved its position on the cost curve relative to peers through expansion of low-cost refineries and closure of high cost operations.
- The amended AWAC agreement ensures that Alumina will be able to maximise value for shareholders and makes it a more attractive acquisition target.
Company Profile
Alumina Ltd. is a forwarding office for Alcoa World Alumina and Chemicals’ distributions. Its profit is a 40% equity share of AWAC profit, less head office and interest expenses. Its cash flow consists of AWAC distributions. AWAC investments include substantial global bauxite reserves and alumina refining operations. Declining capital and operating costs and a lack of supply discipline from China are likely to result in competitive pressures, but Alumina’s position in the lowest quartile of the industry cost curve is defensive.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.