DWS' First-Quarter 2021 Results Ahead of Recent Cautious Guidance

No moat DWS reported net income of EUR 169 million for the first quarter of 2021, 39% higher than the EUR 121 million it reported for the first quarter of 2020 and also 3% higher than what it booked for the final quarter of 2020. Net income for the quarter was 10% ahead of the consensus expectation of analysts polled by DWS investor relations. DWS recently guided that it anticipates flat pretax profit growth for 2021. This looks conservative given the low base created by the depressed market valuations in the first half of 2020. DWS beat consensus expectations on both the top line and expenses. Top-line growth was the result of healthy net new inflows, the recovery in markets, and performance fees. Management fee margins remain under pressure as clients increasingly favour passive products, although DWS did record net inflows into its active products for the quarter. The major reason why we decided not to award DWS a moat rating was that its historical track record did not indicate that it had the ability to hold on to client assets. If it can continue to produce healthy net new money inflows, we will have to reconsider our view. For now we maintain our no-moat rating and EUR 47 per share fair value estimate.