Man Group Plc (EMG) is a financial services company providing portfolio solutions to clients. The company is an investment management company actively deploys latest technologies to keep it in a leading position in the growing industry. The company provides long-term, private and alternative market products on multi and single manager bases.The company invests heavily on talent, research, and technology to deliver the best outcome for its clients. The company provides customized solutions related to hedge fund services using its expertise, infrastructure and advanced technologies. The group operates globally with offices located in Australia, Japan, Shanghai, Beijing, Hong Kong, Liechtenstein, Switzerland, Stamford, Charlotte, Boston, New York and London. The company had been in collaboration with the Oxford University to open an OMI (Oxford-Man Institute. The OMI had been a part of the Department of Engineering Science at Oxford and is conducting research work related to quantitative finance using data analytics and machine language. Man Group’s Major product offerings include Man AHL, Man Numeric, Man GLG, Man FRM and Man GPM.

Key Statistics

 

Management Team

The current Chairman of the Board is Ian Livingston (Lord Livingston of Parkhead) and was appointed in May 2016. Luke Ellis assumes the responsibilities of the Chief Executive Officer and was appointed to the board in 2016. Mark Jones oversees the responsibilities of Chief Financial officer.

Top Shareholders

 

Financial Highlights - H1 Financial Year 2019 ($ million)


(Source: Interim Result, Company Website)
 
In the first half of the financial year 2019, the company’s net revenue surged by 7.81 per cent to $524 million from $486 million in the first half of the financial year 2018. The company’s net management fee revenue was at $382 million in H1 FY2019 versus $401 million in H1 FY2018. The group’s performance fee revenue was at $142 million in H1 FY2019 versus $85 million in H1 FY2018. The company’s adjusted PBT (Profit Before Tax) surged by 3 per cent to $157 million in the first half of the financial year 2019 from $153 million in the first half of the financial year 2018. The company’s statutory profit attributable to the shareholders stood at $90 million in the H1 FY2019 versus $74 million in the H1 FY2018. The company Statutory basic earnings per share stood at 5.9 cents in H1 FY2019 as against 4.6 cents in the H1 FY2018. The company’s Statutory diluted earnings per share stood at 5.8 cents in H1 FY2019 as against 4.6 cents in the H1 FY2018. The adjusted earnings per share increased by 6 per cent to 8.6 cents in H1 FY2019 as against 8.1 cents in the H1 FY2018. The increase in the adjusted EPS was driven by high performance fees and investment gains. The lower share count after buybacks of shares created a positive impact on the EPS. In the First half of the financial year 2019, the company’s Asset weighted underperformance against peerswas at 1.1 per cent versus 1 per cent on 31^st December 2018. The interim dividend in the first half of the financial year 2019 was at 4.7 cents as against 6.4 cents in the first half of the financial year 2018.

Segments

The company operates in a single reportable segment being investment management. The company has a centralised shared infrastructure for its five investment managers incorporating FRM, AHL, GLG, GPM and Numeric.

The company had divided its revenue on the basis of geographic locations. In the financial year 2018, the company’s revenue surged from Ireland, United Kingdom & the Channel Islands segments. In comparison, the revenue from its Cayman Islands, United States of America and Other countries segments had declined for the period.

For the financial year 2018, the company’s net current assets surged from other countries. Whereas the net current assets from its United Kingdom & the Channel Islands and United States of America segments had declined for the period.

Financial Ratios

 

The reported EBITDA margin in FY2018 declined by 4.3 per cent to 28.8 per cent against 33.1 per cent reported for the same period in the prior year. The reported operating margin in the Financial Year 2018 increased by 3.7 per cent to 31.7 per cent from 28 per cent reported in FY 2017. The reported Pre-tax margin in FY2018 was up by 3.5 per cent to 29 per cent against 25.5 per cent reported in the corresponding prior-year period. Net margin reported was 28.4 per cent for the financial year 2018, reflecting a slight decrease of 1.8 per cent when comparedwith prior-year data for the same period. The company’s Net margin for the period was 28.4%, way ahead of industry Median of 21.8 per cent for the period. Return on equity for the Financial year 2018 stood at 16.5 per cent, which was higher than the industry median of 14.3 per cent. On leverage front, the debt-equity ratio of the Man Group Plc was 0.09x for FY 2018, which was lower as compared to the industry median of 0.15x, implying that the company is less leveraged compared to its peers.  
 
Share Price Performance

 
 Daily Chart as at August-12-19, before the market close (Source: Thomson Reuters)

On August 12, 2019, at the time of writing (before the market close, at 12:40 PM GMT), Man Group Plc shares were trading at GBX 155.70, up by 0.25 per cent against the previous day’s closing price. The stock's 52-weeks High and Low are GBX 183.65/GBX 124.08. Stock’s average traded volume for 5 days was 2,925,214.80; 30 days – 3,219,148.80 and 90 days – 3,604,410.07. The average traded volume for 5 days was down by 9.13 per cent as compared to 30 days’ average traded volume. The company’s stock beta was 1.32, reflecting higher volatility as compared to the benchmark index. The outstanding market capitalisation was around £2.38 billion, with a dividend yield of 5.11 per cent.

Valuation Methodology
Method 1: Price to Book Value Approach (NTM)
 


To compare Man Group Plc with its peers, Price/Book multiple has been used. The peers are River and Mercantile Group Plc (NTM Price/Book was 3.48), Rathbone Brothers Plc (NTM Price/Book was 2.53), Burford Capital Ltd (NTM Price/Book was 1.45), Standard Life Aberdeen Plc (NTM Price/Book was 0.81) and Provident Financial Plc (NTM Price/Book was 1.49). The average of Price/Book (NTM) of the company’s peers was 1.95x (approx.)

Method 2: Price to Cash Flow Approach (NTM)
 
 
To compare Man Group Plc with its peers, Price/Cash Flow multiple has been used. The peers are Standard Life Aberdeen Plc (NTM Price/Cash Flow was 12.13), Brewin Dolphin Holdings Plc (NTM Price/Cash Flow was 12.52), IG Group Holdings Plc (NTM Price/Cash Flow was 12.21), 3i Group Plc (NTM Price/Cash Flow was 7.64) and Burford Capital Ltd (NTM Price/Cash Flow was 6.36). The Average of Price/Cash Flow (NTM) of the company’s peers was 10.20x (approx.)

Growth and Risk Assessments

The company is a market leader in providing a solution related to the hedge fund market using advanced technologies and machine learning techniques. The company keeps on launching new platforms for providing solutions related to investment management services in order to cater to the needs of its existing and new clients. The company increased its fund under management as driven by positive investment movement and positive foreign exchange transactions. The company might be impacted because of the uncertainty created due to Brexit, as it would result in customer loss and may negatively impact the financial performance of the company.
 
Conclusion
 
The company had a decent financial performance for the first half of the financial year 2019. The company’s top-line performance had improved for the period. The company had recently undergone a corporate reorganisation which will provide greater flexibility in terms of financing the business.
In the first half of the financial year 2019, the central bank growth accelerated which resulted in equity markets growth and had provided the company with growth opportunities and the necessary momentum to increase its business operations. The company operates in themultiple geographies which will help it to mitigate the risks faced in a particular location with the profits generated from other locations.
 
Based on the decent prospects and support from the valuation conducted using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 155.30 (as on 9th August 2019) with high single-digit upside potential based on 1.95x NTM Price/Book (approx.) on FY19E book value per share (approx.) and 10.20x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 

*All forecasted figures and peer information have been taken from the Thomson Reuters. Currency Rate is 1 USD = 0.82731 GBP.
*The buy recommendation is also valid for the current price as covered in the report (as on August 12^th, 2019).

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