Berenberg brings Jupiter Fund Management 'back down to earth'

Berenberg brought its estimates and valuation of Jupiter Fund Management "back down to earth" on Monday after the group's recent results confirmed that the silver lining that investors had hoped for had not materialised.

Although Berenberg reiterated its 'hold' rating on the stock, its target price was cut from 525p to 489p after second-quarter outflows of £1.1bn were worse than consensus estimates of £700m.

Berenberg's analysts suggested that these outflows had continued into Jupiter's current trading quarter as inflows into the group's European growth and UK smaller companies funds were "more than offset" by redemptions from its dynamic bond, Merlin income and European opportunities funds.

"At the current run rate, we estimate Jupiter will see a further £0.6bn of outflows this quarter," Berenberg said.

The analysts highlighted that Jupiter ended the first half with £87m of capital above its regulatory minimum, which is due to fall by £50m once new accounting standards take effect in 2019, giving the group only £37m of headroom above its regulatory minimum.

"We believe investors will struggle to be comfortable with such a narrow surplus," the analysts said, cutting their forecast for the group's special dividend by almost 5p to 8p, which would allow the group to rebuild its capital surplus to c£60m by year-end.

"Jupiter’s strategic aim is to transition from a niche UK asset manager to a broader-based European asset management group. This will require significant investment in scale over the next few years. We expect management to phase the cost of this investment according to top-line strength. For this reason, we expect Jupiter to deliver only limited operational leverage, even if the group’s flows recover as we expect."