StepStone (US:STEP) Goldman Sachs·2025-05-30 02:55Investment Rating - The report maintains a Neutral rating on StepStone Group (STEP) and raises the 12-month target price to $63 from $57, indicating a potential upside of 6.2% from the current price of $59.30 [6][8]. Core Insights - STEP reported FY4Q25 EPS of $0.68, significantly up from $0.44 in FY3Q25, driven by record Fee-Related Earnings (FRE) of $94 million and strong net performance fee contributions of $42 million [1]. - The management fee revenue benefited from $15.7 million of retroactive fees, contributing to a healthy FRE margin of 44% for the quarter, with expectations for a normalized FRE margin of approximately 37% for FY26 [1][4]. - Fee-earning Assets Under Management (AUM) increased to $121 billion, reflecting a 6% quarter-over-quarter growth, supported by record private wealth subscriptions of $1.2 billion and $9.9 billion in gross inflows [1][4]. - The report anticipates continued management fee growth in the high teens, driven by strong fundraising momentum across various strategies and a doubling of Wealth AUM year-over-year to $8.2 billion [1][4]. - The report revises EPS estimates for calendar years 2025, 2026, and 2027 to $2.18, $2.35, and $2.74 respectively, reflecting improved visibility on AUM growth and a favorable FRE mix shift [1][5]. Summary by Sections Financial Performance - STEP's FRE margin for FY4Q25 was reported at 44%, benefiting from retroactive and non-recurring advisory fees, with a normalized FRE margin expected to be around 37% for FY26 [4]. - The company completed its second tranche of Non-Controlling Interest (NCI) buy-in, issuing $161 million in equity, which is expected to be modestly accretive to EPS [4]. Wealth Management - The Wealth business achieved record subscriptions of $1.2 billion, with AUM reaching $8.2 billion, up from $6.3 billion in the previous quarter and $3.4 billion year-over-year [1][4]. - STEP's evergreen suite is now available on nearly 500 platforms, with a distribution strategy focused on Europe [1][4]. Valuation Metrics - The SOTP analysis indicates a target price of $63, with a breakdown showing 78% of value derived from FRE, 19% from carry, and 2% from balance sheet value [5][6]. - The current valuation of STEP is approximately 27 times the 2025 estimated adjusted diluted earnings, aligning with the three-year average NTM P/DE of 27-28 times [1].