On Thursday, Barclays made a notable adjustment to its perspective on Man Group Plc (EMG:LN) (OTC: MNGPY), upgrading the investment management firm's stock from Equal Weight to Overweight. The firm also set a new price target of £2.70, reduced from the previous £2.95.
The upgrade comes despite Barclays' anticipation of a lackluster third-quarter performance report from Man Group. The firm's decision is grounded in the significant drop in Man Group's share price over the past six months, which Barclays believes has led to the market undervaluing the company's ability to generate performance fees.
Barclays argues that the current share price fails to reflect the value of Man Group's performance fee generation, a view they consider excessively conservative. The firm acknowledges that Man Group's AHL trend-following strategies have experienced substantial drawdowns since April, which have negatively affected sentiment and the potential for performance fee earnings. However, these setbacks have not significantly impacted the firm's management fee earnings.
The historical performance of Man Group's strategies is a key factor in Barclays' optimistic outlook. The firm notes that these strategies have a track record of recovering to high water marks within a year of peak drawdowns, suggesting resilience and potential for recovery. With the valuation currently at less than 7 times the Bloomberg consensus FY25e and an approximate 6% yield, Barclays finds the valuation attractive.
Barclays' stance is forward-looking, focusing on the potential for Man Group's valuation to correct in the face of short-term challenges. The firm is setting aside the near-term concerns of the upcoming third-quarter report, which is expected to reflect previously notified outflows and ongoing reductions in consensus performance fees, in favor of a longer-term investment thesis.
In other recent news, Deutsche Bank has adjusted its rating for Man Group Plc, first downgrading the stock from Buy to Hold, following the company's first-half 2024 results, and later upgrading it back to Buy. The bank's analysis highlighted a modest recovery in Man Group's investment performance after a challenging six-month period. This period had significantly affected the company's short-term performance fees and share buybacks, leading to a 24% decline in the share price since its peak in April 2024.
Deutsche Bank's decision to upgrade the stock was based on the significant share price movement, which they believe did not fully account for future performance fees, suggesting potential undervaluation. However, the bank also expressed concerns over weakening investment performance and anticipated redemption in the third quarter, which led to the initial downgrade.
The bank's revised outlook points to challenges faced by Man Group, particularly in generating performance fees and maintaining investor confidence amidst forecasted redemptions. These concerns have been incorporated into Deutsche Bank's updated financial projections for the company. The bank has also adjusted the price target for Man Group, setting it at GBP2.80, a decrease from the previous GBP3.25.
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