25th Nov 2022 16:33
(Alliance News) - "Uncertainty weighs" on Man Group PLC's shares in the quarters ahead, according to UBS on Friday, as it cut the stock to 'neutral' from 'buy'.
UBS maintains that the de-risking of pension funds will have a negative impact on the FTSE-250 hedge fund manager's fund flows in the next nine to 12 months. The hit is currently not factored into consensus estimates for earnings per share in 2023.
UBS forecasts diluted EPS in 2023 of 27.63 cents, which is 11% below consensus.
"We think the market underestimates the magnitude and duration of the upcoming pension fund de-risking process on [Man Group]'s liquid total and absolute return products," the Swiss Bank explained.
Man Group shares were down 1.5% to 214.90 pence each in London on Friday afternoon.
UBS maintains that "any upside to its share price will be limited in the coming quarters".
It believes that the consensus for 2023 EPS is likely to be revised downwards, which will limit any growth to Man Group shares in the next six to twelve months.
In October, Man Group reported assets-under-management at September 30 was down 2.7% to USD138.4 billion from USD142.3 billion at June 30. Man noted it suffered a USD500 million net outflow, swung from a USD5.3 billion net inflow a year ago.
The bank noted that, excluding USD3.4 billion of inflows into the low margin Multi-Manager Solution during the quarter, the firm reported outflows of USD3.9 billion. This marks the weakest quarter of flows for Man Group in the past five years, UBS said.
"We suspect outflows were driven by UK pension funds seeking liquidity to meet rising cash collateral requirements on their interest rate derivative positions," UBS explained.
"While we don't expect any further fund sales for liquidity purposes, we forecast flows to these products to remain muted throughout 2023 as we expect de-risking pension funds to drive sales of EMG's total and absolute return products."
UBS still views the firm's long-term prospects "favourably", especially given the "strong performance" of its key strategies. The "challenging" environment in 2023 is driven by externalities, UBS said, given that the performance of the fund remains "strong".
"While [Man Group] is the best performing EU asset manager in our coverage [in the year to date], we expect changes to an important client cohort, UK pension funds, will limit upside to [its] shares in the coming six to 12 months," UBS said.
Whilst UBS cut its 2023 EPS estimate, it raised its 2022 EPS estimate by 19% to 48.84 cents, as "to reflect a stronger perfomance fee outlook this year".
It lowered the price target for the stock to 220p, from 275 previously. This reflects, in order of importance, the lower outlook for cash flow, a change in the exchange rate of the dollar to the pound, and an increase to the cost of equity capital.
By Elizabeth Winter; [email protected]
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