Banks, insurers, and any shares that have anything to do with financial services, all took a hit from the Brexit vote. But while the banks will certainly suffer if they lose their European freedoms, why should it be so tough for companies that manage our investments?
A turnaround quarter?
I’ve been watching Man Group (LSE: EMG) for some time, thinking the shares were starting to look undervalued as their slump continued — from a high in April 2015, the price fell by 50% to close at 109p yesterday. But today we’re looking at a 14% rise in early trading, to 124p, after an expectations-beating third-quarter trading update.
The company revealed net inflows of $1.3bn in the quarter, mainly into its quantitative funds. Added to that we had a positive investment movement of $2.5bn, to take funds under management up 5.6% overall to $80.7bn. That investment movement amounts to a gain of 3.2%, and we should be wary of judging things on such a short timescale (especially against the background of the events of the past three months). But it does suggest the tide is turning, and sentiment certainly seems to be improving.
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Looking at the wider picture, we still have a fall in EPS of nearly 50% forecast for this year, but that would put the shares on a P/E multiple of a relatively undemanding 14.
If we really get the 5.6% dividend yield that the City is forecasting (and it wouldn’t be well covered), it would be starting to look good. On top of that, a 35% earnings rebound predicted for 2017 would drop that P/E as low as 10.3, and dividend cover would be lifted to 1.9 times. That makes Man Group shares look tempting to me.
A continuing recovery?
Shares in Aberdeen Asset Management (LSE: ADN) also hit a down spell starting in early 2015, but 2016 has seen a decent recovery — since a low on 11 February, the shares are up 56% to 328p, so is this the start of something big?
Like Man Group, Aberdeen’s earnings are expected to fall this year, though with a smaller drop of around 35%, and there’s also a rebound pencilled-in for 2017, but again less extreme at about 10%.
Aberdeen’s most recent trading update, for the quarter to June, told us of a modest increase in funds under management of 3% to £301bn. That’s despite a net outflow of £8.9bn in the period, and is thanks to a £17.5bn improvement in asset values. Again it’s only a short-term snippet, but if that kind of performance can continue in the long term then we could be looking at a good investment here.
The only things that make me a little wary at this stage are the current share valuation and my lower confidence in the dividends. The shares are on forward P/E ratios of 17 and 15 for this year and next, and though predicted dividend yields are high at 5.7% to 5.8%, cover of less than 1.1 times by September 2017 isn’t so solid.
As long-term investments, I think both of these stocks should reward shareholders well, especially as both firms are highly cash-generative and are pursuing confident dividend policies. But on current valuation, Man Group looks the more attractive of the two to me right now.
