It wasn’t quite as spectacular a rise as this time a year ago, but Man Group (EMG) continued its winning streak Friday after another quarter of forecast-busting results and a further share buyback.
Man shares rallied almost 5% to a further two-and-a-half-year high at 188p as both funds under management (FUM) and net inflows for the third quarter came in higher than expected.
It’s a company we’ve followed with interest since its Q3 2016 update, which saw the stock surge 17%. We backed it then at 123p and have seen it rocket over 50%.
FUM surged to $103.5 billion – up 28% year-on-year. That’s $4.5 billion more than expected, up from $95.9 billion at end-June.
The group continues to benefit from a risk-on investment environment and the continued search for yield. Strong inflows into alternative risk premia and emerging market debt strategies helped it register net inflows of $2.8 billion in the three months to 30 September. Broker Credit Suisse didn’t expect that number to reach $1 billion.
“Man’s flow mix exemplifies the benefits of its diversification, with client demand predominantly in relatively new product areas,” said analyst Tom Mills.
Meanwhile, as one share buyback programme came to an end, the hedge fund manager announced a similar scheme – it will repurchase a further $100 million of shares, as well as continuing to search for acquisition opportunities.
It confirmed the Financial Conduct Authority has no plans to review Man’s capital requirements at this time, which Mills tells us “should allay any concerns of an increase in capital requirements in the near term”. We’re told Man will have pro-forma surplus regulatory capital of $275 million after the buyback.
Man saw positive movements to the tune of around $4.8 billion, including from investments and US dollar weakness against the euro and sterling.
The decision to absorb research costs from January 2018 will hit profits by $10-15 million. In the grand scheme of things, that’s a relatively small amount for what Mills sees as a “sensible decision”. “It could also be a modest competitive advantage for Man if its unlisted competitors do not follow suit.”
Last time we checked in with Man six months ago it had jumped through a strong resistance level at 150p thanks to a 7% rise. Well, today it’s a similar story, as the stock bounced off the 50% Fibonacci retracement of the decline from 2011 high to 2012 low.
Mills ups his earnings per share (EPS) estimates for 2017, 2018 and 2019 by 4%, 6% and 5% respectively. This reflects higher FUM, better-than-expected fund performance and the buyback.
However, that’s offset by a margin compression increase and the addition of research costs. And it means price targets from both Mills and JPMorgan’s Gunjit Kambo are unchanged at 195p and 190p respectively.
If the current 188p resistance were breached, the next big target looks to be 220p, the 2015 high. Chief executive Luke Ellis admits “flows are likely to be uneven quarter to quarter”, but investors are being paid a yield of around 5% on top of the buybacks to hang on and find out.
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.