Man Group Stock Upgrade

Shares of Man Group (LON:EMG) climbed over 2% on Wednesday after CG Capital Markets upgraded the stock to a "buy" rating, citing a compelling valuation and confidence in the company’s long-term growth prospects.

The upgrade comes as the asset management firm demonstrates resilience in its core business and maintains its reputation as a highly cash-generative enterprise.

Factors Supporting the Upgrade

CG Capital Markets highlighted several factors underpinning its optimistic outlook for Man Group:
– Assets Under Management (AUM): Showed consistent growth over the past decade, with net inflows averaging 5% of opening AUM, well above the sector average of zero.
– Future Expectations: While CG anticipates slight net outflows in 2024, it expects a return to growth in 2025 and beyond.
– Core Management Fee Profits: After hitting a low of $172 million in 2019, Core profits before tax (PBT) have improved, with projections exceeding $300 million in 2024, marking the highest level in over a decade.

Performance Fees

Performance fees have been a significant contributor to Man Group's earnings. Despite weaker earnings in 2023 and expectations for subdued results in 2024, CG remains confident in the firm’s ability to generate strong long-term returns. Over the past 14 years, gross performance fees have averaged 0.28% of AUM. Although CG forecasts a slightly lower average of 0.22% for 2024-2026, they see recent weakness as an anomaly, not a fundamental issue with the business model.

Financial Stability

Man Group’s strong balance sheet enhances its appeal. As of the first half of 2024, the company reported:
– $109 million in net cash
– $549 million in seed investments
– $170 million drawn from its $800 million revolving credit facility
This financial stability provides flexibility for potential acquisitions or capital returns, successfully executed in the past.

Attractive Valuation

CG Capital Markets noted that Man Group trades at a price-to-earnings ratio of 7.5x for 2025, dropping to 6.4x in 2026, while offering a dividend yield rising from 6.7% to 7.4%. This reflects the market’s cautious stance on near-term performance fees, presenting a buying opportunity for investors, according to CG.

Addressing Performance Fee Concerns

CG addressed concerns about performance fee volatility, noting that consecutive years of below-average performance fees are rare in the company’s history. While 2023 and 2024 are projected to buck this trend, CG believes this is temporary.

CEO Insights

Additionally, comments from Man Group CEO Robyn Grew highlighted the potential for further acquisitions, organic growth, an attractive dividend policy, and occasional share buybacks. These factors, combined with expectations of a recovery in performance fees, support the case for meaningful share price appreciation.

Price Target and Returns

CG Capital Markets set a new price target of 272p for Man Group, up from 194p, representing a 30% upside. Factoring in the dividend yield, the brokerage projects a total shareholder return of 37%. The analysts argue that robust Core EPS growth and the anticipated rebound in performance fees make Man Group a compelling investment opportunity.