ShoreCap cuts 'fair value' estimate for Man Group after negative Q3 AuM surprise

ShoreCap analysts cut their 'fair value' estimate for shares of Man Group following the figures on third quarter assets under management released by the fund manager ten days before, but stayed at a 'buy' given the attractions of the outfit's business model.

Contrary to what they had anticipated, following the AuM update, they reduced their estimates for profits before tax in 2019, 2020, and 2021 by 7.0%, 5.0% and 6.0%, respectively.

The update revealed that "a sharp correction" in a number of AHL strategies in September had reversed most of the positive performance seen in July and August, leading the analysts to cut the projection for Man Group's full-year net performance fees by $22.0m.

On top of that, and reflecting a challenging flow environment, the firm had reported net outflows of $1.1bn during the quarter, an amount equivalent to 0.9% of AuM, which saw them double their assumption for full-year net outflows to $2.8bn.

In turn, that reduced their end-year AuM forecast from $117.8bn to $113.7bn, contributing to knock-on PBT downgrades for 2020 and 2021.

Nonetheless, they stayed at a 'buy' on the shares, telling clients that the market was undervaluing the firm's average through-cycle performance.

"While September’s reversal robbed us of what we thought would be an upgrade, we continue to view Man’s business model as the best alignment of investment performance with client's objectives and think that the market fundamentally undervalues the profits based on any 'through-cycle average' performance fee."