Interactive Investor

Man Group rally is over

1st August 2014 13:43

Lee Wild from interactive investor

Hedge fund manager Man Group has had a stunning run since mid-May following a shake-out after its first-quarter update - the share price had risen by almost half to 126p as the core AHL fund improved. But many investors bailed out a day before these results, clearly not fancying the risk that half-year numbers wouldn't justify current valuation multiples. They didn't.

True, a 7% increase in funds under management to $57.7 billion (£34.25 billion) helped the bottom line. Adjusted pre-tax profit rose by a tenth to $148 million - well ahead of consensus estimates - giving adjusted earnings per share (EPS) of 7.1 cents. Net performance fee income of $65 million easily beat forecasts, probably because of AHL's Evolution product, but although net inflows of $2.8 billion (compared with a net outflow of $5 billion a year ago) were certainly encouraging, inflows slowed to a modest $800 million in the second quarter.

That's likely due to the performance of the GLG funds. While quant fund and profit driver AHL did well, the equities business had a bad six months. Underperforming equity long-short strategies hit GLG, and fund of funds business FRM, too, where its portfolios are typically lower beta than the broader indices. GLG had been driving inflows, so any slip-ups there will hurt.

"Whilst it has been a positive first half for the firm and we recorded another quarter of net inflows in the second quarter, we remain cautious as we look to the second half of the year," says chief executive Manny Roman. "Investment performance in the first half was mixed amid a continued volatile market environment."

Tellingly, Bank of America Merrill Lynch says, "the most positive element of these results is the absence of surprises." But it does admit that "the hard work the company has undergone over the past few years paying off." It reckons the shares could be worth 135p in 12 months.

Panmure Gordon expects full-year adjusted pre-tax profit of $290 million, giving adjusted EPS of 14 cents. It's only $300 million and 14.5 cents for 2015. But that's about 18% above consensus forecasts. Use the City average and Man shares trade on 16 times forward earnings.

Even Panmure has bailed out of its 'buy' rating given the recent rally and lack of earnings visibility. It's probably a sensible move.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.