Investing.com -- Shares of Man Group (LON:EMG) climbed over 2% on Wednesday after CG Capital Markets upgraded the stock to a "buy" rating, citing a compelling valuation and confidence in the company’s long-term growth prospects.
The upgrade comes as the asset management firm demonstrates resilience in its core business and maintains its reputation as a highly cash-generative enterprise.
CG Capital Markets highlighted several factors underpinning its optimistic outlook for Man Group. Assets under management have shown consistent growth over the past decade, with net inflows averaging 5% of opening AUM—well above the sector average of zero.
While CG anticipates slight net outflows in 2024, the brokerage expects a return to growth in 2025 and beyond.
Another key factor driving the upgrade is the recovery in Core Management Fee profits before tax.
After hitting a low of $172 million in 2019, Core PBT has steadily improved, with projections exceeding $300 million in 2024—marking the highest level in over a decade.
This recovery reflects the strength of Man Group’s underlying operations and its ability to capitalize on its diverse asset management strategies.
Performance fees, a major contributor to Man Group's earnings, have been a standout feature of the business.
Despite weaker performance fee earnings in 2023 and expectations for similarly subdued results in 2024, CG remains confident in the firm’s ability to generate strong returns in the long term.
Over the past 14 years, gross performance fees have averaged 0.28% of AUM, and while CG forecasts a slightly lower average of 0.22% for 2024-2026, they see the recent weakness as an anomaly rather than a fundamental issue with the business model.
Man Group’s strong balance sheet also adds to its appeal. As of the first half of 2024, the company reported $109 million in net cash and $549 million in seed investments, along with $170 million drawn from its $800 million revolving credit facility.
This financial stability provides flexibility for potential acquisitions or capital returns, which the firm has executed successfully in the past.
The valuation further underscores the stock’s attractiveness. CG Capital Markets notes that Man Group trades at a price-to-earnings ratio of 7.5x for 2025, dropping to 6.4x in 2026, while offering a dividend yield rising from 6.7% to 7.4%. This reflects the market’s cautious stance on near-term performance fees but presents a buying opportunity for investors, according to CG.
Additionally, CG addressed concerns about performance fee volatility, noting that consecutive years of below-average performance fees are rare in the company’s history.
While 2023 and 2024 are projected to buck this trend, CG believes this is not indicative of a structural issue but rather a temporary dip.
Additionally, CG mentioned comments from Man Group CEO Robyn Grew on the potential for further acquisitions and organic growth, alongside an attractive dividend policy and occasional share buybacks.
These factors, combined with expectations of a recovery in performance fees, support the case for meaningful share price appreciation.
CG Capital Markets set a new price target of 272p for Man Group, up from 194p, representing a 30% upside.
When factoring in the dividend yield, the brokerage projects a total shareholder return of 37%. The analysts add that the combination of robust Core EPS growth and the anticipated rebound in performance fees makes Man Group a compelling investment opportunity.