Henderson slumps on RBC downgrade

RBC said while it believes the investment management company remains a well-managed business, its current valuation premium to peers is “too wide” given a weak flow outlook for the rest of 2016 and material earnings downgrades on poor performance fee generation.

The broker expects a earnings per share compound annual growth rate decline of 5.7% in calendar years 2015-2017, which lags the peer average for a 2.9% fall.

“Further, due to the reductions to our forecasts, we now expect it to take until 2018 for Henderson’s EPS to recover to the 2015 level,” RBC said.

RBC forecasts weak retail flows through the rest of 2016 on uncertainty following Britain’s vote to leave the European Union on 24 June and due to high redemptions from the Henderson Global Investors UK Property fund.

Institutional flows are also expected to remain subdued, since uncertainty on the macro outlook is likely to continue to delay investment decisions, RBC said.

“Overall, we now expect 2016 to be the first full year of net outflows since 2012, at -£2.4B. We expect a flow recovery thereafter, and if this does not occur our forecasts and price target would be at risk.”

RBC reduced its underlying pre-tax profit forecasts by 12%, 16% and 18% in 2016, 2017 and 2018, respectively.

Based on analysis of Henderson’s performance fee generating funds, RBC also cut its 2016 performance fee forecast by over 50%, to the lowest level since 2012.

“Our revised forecasts are 6%-9% below consensus through our forecast horizon. We believe current consensus is too optimistic, and we expect downward revisions should occur heading into results and immediately thereafter.”

Shares dipped 1.77% to 222.50p at 0952 BST.