RBC upgrades Man Group to 'outperform'

“We are confident Man's balance sheet should provide the firepower for a positive catalyst (either a merger and acquisition or extraordinary returns) this year,” RBC analysts said in a note to investors.

“While investors may need to be patient for one to emerge, it is our opinion that those who take advantage of the current valuation discount to peers will be rewarded.”

RBC said it believes Man Group is retaining surplus capital to fund potential acquisitions. The broker estimates the company has around $500m of surplus capital to deploy.

“In our view there is a small possibility that Man announces a share buyback programme concurrent with first half results on 26 July, but it is more likely that Man continues its search for acquisitions.

“Therefore, while investors may need to show patience, we believe that those that do will be rewarded, either with a higher yield or a rerating driven by M&A-led earnings growth.”

Man Group’s shares are down 30% in the year to date and the company has underperformed the asset managers sector which is on average down by 11%.

RBC believes the share price performance reflects a lack of positive catalysts so far this year, a poor run for is its alternative investment management business AHL, and upcoming first half results which are expected to be lacklustre.

RBC cut its earnings per share forecast by 10%, 8% and 4% in 2016, 2017 and 2018, respectively, largely because of reflecting higher variable compensation from performance fees.

Shares climbed 0.40% to 124p at 0939 BST.