Man Group relative return 'no longer as attractive as it was' - RBC Capital

Man Group's earnings are on the up but the hedge fund group's shares are up with events, RBC Capital Markets said as it downgraded the shares to a 'sector perform'.

Incorporating current market conditions and new assumptions on future trading, EBC increased its earning per share estimate by 11% to 16p in 2017, but cut its EPS forecast 1% to 19.66p in 2018 and kept it flat at 22.61 for 2019.

"The key changes affecting our forecasts are higher net flows and performance fees in 2017E, which are offset in 2018E and 2019E by a lower revenue margin and higher cost base going forward."

RBC analyst Peter Lenardos upped his target price 3% to 175p, taking account of stable management fees, a sustained sector re-rating and an increased GBP/USD rate to 1.35 from 1.25.

"Man continues to experience positive business momentum, with sustained net inflows and a resurgent AHL supporting our performance fee assumptions, while we view management’s diversification of the business through M&A favourably.

"However, Man is negatively exposed to dollar weakness and sterling strength. Further, there remains uncertainty over Man’s regulatory capital requirement – management confirmed that we will not receive an update until its 2017 results – given other asset managers have experienced material increases in their requirements following their latest FCA reviews."

The rating was moved from 'outperform', with the analyst pointing out that Man's return is now broadly in line with the average implied return of the other asset managers in his coverage and he believes "the relative return is no longer as attractive as it once was".