Investment bank Peel Hunt has made “a number of downgrades” to its forecasts for UK asset management firms over the next two years, following the release of lacklustre Q3 earnings results.
The report, released on Friday (3 November), referred to most earnings statements highlighting “how difficult market conditions have been, characterised by a complete lack of investor confidence and increased outflows given cost-of-living pressures and the more attractive returns now on offer from cash”.
As such, asset management firms received an average projected earnings-per-share downgrade of 15%, with Man Group being “the only positive sign” as a result of its higher assumed performance fees.
“Given the inherent operational leverage, and already reduced levels of AUM/profitability, the consequence is a material change to certain estimates,” Peel Hunt warned.
The report revealed that asset managers saw an average net decrease of 3% from opening assets under management. For companies including Ashmore, Liontrust, and Premier Miton, the outflows fell even further to 5%. However, it added that wealth managers and platforms “proved more robust”, citing Tatton Asset Management as a “bright spot” amid a sea of gloomy results.
“In most cases, market movements have been relatively modest, although for the more equity-reliant managers performance has generally been negative,” the report commented.
Based on the results, Peel Hunt adjusted its AUM assumptions for the companies negatively for all except Man Group and Tatton. Ashmore has experienced the largest shift, with a 16.5% assumed decrease for year one and a 18.8% decrease in assets for year two. The only other firm to suffer double-digit projected AUM falls was Impax by 10.7% for year one, and 12.4% for year two.
Almost all other companies included in the study apart from Man Group – Jupiter, Liontrust, Ninety One, Polar Capital and Premier Miton – have suffered projected AUM downgrades of between 2.5% and 7.7% both for year one and year two. Peel Hunt made no changes to its predictions for Tatton, given its AUM is “tracking broadly in line with our existing assumption”.
“In situations where we had assumed AUM growth, the trend over the last quarter has a fairly significant impact, with the average AUM reduction being 7%,” the firm said.
EPS and target price changes
In terms of earnings per share, five asset management firms – Impax, Jupiter, Liontrust, Ninety One and Polar Capital – saw downgrades, with Polar Capital taking the biggest hit for year one at 10.5% and Jupiter suffering the biggest negative revision for year two at 20.4%. Other companies to see negative double-digit revisions for the second year include Ashmore by 10.6%, Impax by 17.2%, Ninety One at 18.4%, Polar Capital at 20.4% and Premier Miton at 14.5%. In contrast, Man Group saw an uptick of 11.3% for year one while expectations for year two remained the same. Overall, projected earnings per share fell by 1.2% for year one and 15.1% for year two.
All firms on the list – again with the exception of Man Group – saw their target price reduced, with Jupiter and Impax suffering the biggest downward revisions at 33.3% and 27.8% respectively. Ashmore and Liontrust were the only two to have their target prices reduced only by single digits, at a respective 8.7% and 5.1%. Ninety One’s TP fell by 7.7%, Polar Capital suffered a 7.3% decrease and Premier Miton’s target price shrunk by 6.8%.
Overall, the sector is currently trading on an average earnings-per-share for 2023 of 12.1%, but Peel Hunt expects this to fall to 11.5% for 2024.
Given the current circumstances, Peel Hunt made recommendations to buy Ashmore, Liontrust Asset Management and Man Group, as well as to ‘add’ Premier Miton given it is “low rated and positioned for market recovery”. It recommended a ‘hold’ on Jupiter Fund Management with the stock trading on a “distressed multiple” while retaining a “strong” balance sheet, and a ‘hold’ on Ninety One given it is “generating more stable results than most of its peers”.