Berenberg initiates coverage of 'growth stock' Man Group at 'buy'
Berenberg has initiated coverage of Man Group shares with a ‘buy’ recommendation, arguing that it is a “compelling growth stock”.
The German broker noted that Man Group, an active investment management firm and hedge fund, had sold a number of very high-margin products to retail investors before the financial crisis. “The subsequent run-off in these products weighed on the group’s revenues,” it explained. “With most of these legacy products now run off, we expect underlying growth the group’s business model will become more evident.”
It estimated that the group’s compound annual growth rate of revenues of -1% over the last five years would have been +8% if the legacy products had been excluded. “Put simply, Man Group has spent the last five years running just so it can stand still.”
Berenberg, which had a share price target of 206p on the stock, added that the company's gross sales were now double what they were five years ago, “reflecting strong institutional demand for quantitative strategies and alternative products. These assets are stickier too, with Man Group’s funds now held for 50% longer than they were five years ago.”
It continued: “Man Group has diversified materially in recent years, both across its investment strategies and within those strategies. This means that it is only modestly exposed to the performance of any one particular fund.”
The broker conceded that even with diversification, performance fee revenues could still be “volatile” and that currency movements could have both a positive and negative impact on the stock's value in sterling terms.
Like any asset manager, fund performance was also uncertain, it added.
Overall, however, Berenberg argued: “With a 2020 estimated PE of only x10.4, Man Group looks like an attractive value proposition. It is not. It is a compelling growth stock. Freed from the earnings drag created by the run off of legacy products, we believe Man Group has reached an inflection point in its growth.”