Business Overview

Man Group Plc (LON: EMG) is a financial services company providing portfolio solutions to the clients. The company is an investment management company which actively deploys the latest technologies to keep themselves in a leading position in the growing industry. The company provides long-term, private and alternative market products on a multi and single manager basis.The company investS heavily on talent, research, and technology to deliver the best outcome to the clients. The company provides customized solutions related to hedge fund services using its expertise, infrastructure and advanced technology. 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 has been in collaboration with Oxford University to open an OMI (Oxford-Man Institute. The OMI has 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 product portfolio includes Man FRM, Man GPM, Man GLG, Man Numeric and Man AHL. 
 

The current Chairman of the Board is Ian Livingston (Lord Livingston of Parkhead), who was appointed in May 2016. Luke Ellis holds the responsibilities of the Chief Executive Officer.

Key Statistics

 

Top Shareholders

 

Trading update for the third quarter (ended 30th September 2019)

On 11th October 2019, Man Group announced its trading update for the third quarter ending 30th September 2019. The company’s FUM (Funds under management) stood at $112.7 billion for the period as against FUM (Funds under management) of $114.4 billion as on 30th June 2019. The company witnessed $0.7 billion of Positive investment for the period. The Net outflows for the quarter stood at $1.1 billion, while FX impacted negatively by $1.3 billion for the period. The company with an annualised interest saving of nearly $4.5 million, redeemed Tier 2 notes of $150 million as on 16th September 2019. As announced in the financial year 2018, the company completed a share repurchase of $100 million, and the total repurchased amount was $0.7 billion since 2014. The company is actively looking forward to potential acquisition opportunities with an intention to repurchase nearly $100 million of shares. 

Segments

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

It has divided its revenue based on geographic locations. In the financial year 2018, the company’s revenue surged from Ireland, United Kingdom & the Channel Islands segments whereas the revenue from its the Cayman Islands, United States of America and Other countries segments have declined for the period.

In the financial year 2018, the company’s net current assets surged from Other countries whereas the net current assets from the United Kingdom, the Channel Islands and the United States of America segments have declined for the period.

Financial Highlights - H1 Financial Year 2019 (30^th June 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 $122 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 PBT (Profit Before Tax) stood at $110 million in the first half of the financial year 2019 from a statutory PBT (Profit Before Tax) of$90 million in the first half of the financial year 2018.

The adjusted management fee PBT declined from $120 million in the first half of the financial year 2018 to $83 million in the first half of the financial year 2019. The decline in the PBT was due to the adoption of IFRS 16 and non-operating impacts related to FX hedge. The company also didn’t receive any income after the sale of its stake in Nephila in the year 2018.

The adjusted performance fee PBT declined from $74 million in the first half of the financial year 2018 to $33 million in the first half of the financial year 2019.

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. 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 centversus 1 per cent on 31^st December 2018.

The interim dividend in the first half of the financial year 2019 was 4.7 cents as against 6.4 cents in the first half of the financial year 2018.

Key Performance Indicators


Investment Performance

Investment Performance is used to measure the asset-weighted outperformance of the company against peers. It gives an indication of the investment performance versus alternative investment styles proposed by other investment managers. In the financial year 2018, although the company’s Investment Performance declined against the last financial year, it has managed to achieve the set target between 0-2 per cent.


Net Flows

Net flows are used to measure the company’s ability to retain and attract investor capital. The company’s net flows declined to 9.9 per cent in FY2018 from 15.8 per cent in FY2017. In the financial year 2018, although the company’s net flows declined against the last financial year but it has managed to achieve the set target between 0-2 per cent.


Adjusted management fee EPS growth

Adjusted management fee EPS growth is used to measure the effectiveness of the company’s business model while taking into consideration the potential value generated for the shareholders and dividend policy of the company. The company’s Adjusted management fee EPS growth declined to 9.3 per cent in FY2018 from 20 per cent in FY2017. In the financial year 2018, although the company’s adjusted management fee EPS growth declined significantly against the last financial year but it has managed to achieve the set target between 5-12 per cent.

Financial Ratios
 
 

The reported EBITDA margin in the first half of the FY2019 surged by 7.7 per cent to 39.1 per cent against 31.4 per cent reported last year for the same period. The reported operating margin in the first half of the Financial Year 2019 increased by 4.7 per cent to 24.9 per cent from20.2 per cent reported last year for the same period. The reported Pre-tax margin in H1 FY2019 was up by 3.1 per cent to 20.9 per cent against 17.8 per cent reported last year for the same period. Net margin reported was 17.1 per cent for the first half of the financial year 2019, reflecting an increase of 2.5 per cent when comparedwith last year data for the same period. The company’s Net margin for the period was below industry Median of 28.3 per cent for the period. Return on equity for the first half of the Financial year 2019 stood at 5.7 per cent, which was lower than the industry median of 7.7 per cent. On leverage front, the debt-equity ratio of the Man GroupPlc’swas 0.29x, which was higher as compared to the industry median of 0.15x, reflecting that the company is more leveraged as compared to its peers.
 
Share Price Performance


Daily Chart as at November-25-19, before the market close (Source: Thomson Reuters)

On November 25, 2019, at the time of writing (before the market close, at 12:53 PM GMT), Man Group Plc shares were trading at GBX 145.10, up by 1.65 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 177.10/GBX 124.08. At the time of writing, the share was trading 18.07 per cent lower than the 52w High and 16.94 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 2,509,007.80; 30 days – 4,541,322.70 and 90 days – 4,262,966.16. The average traded volume for 5 days was down by 44.75 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.30, reflecting higher volatility as equated to the benchmark index. The outstanding market capitalisation was around £2.17 billion, with a dividend yield of 5.56 per cent.

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


To compare Man Group Plc withits peers, Price/Book multiple has been used. The peers are Ashmore Group Plc(NTM Price/Book was 3.46), Brooks Macdonald Group Plc(NTM Price/Book was 2.66), Burford Capital Ltd(NTM Price/Book was 1.39), 3i Group Plc(NTM Price/Book was 1.14) and Standard Life Aberdeen Plc(NTM Price/Book was 0.93). The average of Price/Book (NTM) of the company’s peers was 1.91x (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 St. James's Place Plc(NTM Price/Cash Flow was 17.10), Mattioli Woods Plc (NTM Price/Cash Flow was 14.26), 3i Group Plc (NTM Price/Cash Flow was 7.18), UBS Group AG (NTM Price/Cash Flow was 6.60) and EFG International AG (NTM Price/Cash Flow was 2.48). The Average of Price/Cash Flow (NTM) of the company’s peers was 9.52x (approx.)

Growth and Risk Assessments

The company is a market leader in providing a solution related to the hedge fund market with the use of advanced technologies and machine learning techniques. The company keeps on launching new platforms for providing solutions related to investment management services, to cater to the needs of its existing and new clients. The company increased its fund under management which was driven by the positive investment movement and favourable foreign exchange transactions. The company’s operations may be impacted due to the uncertainty created due to Brexit, as it would result in the customer loss and negatively impact the financial performance of the company.
 
Conclusion
 
The company reported a decent financial performance for the first half of the financial year 2019. The company’s top-line performance has improved for the period. The company has recently undergone a corporate reorganisation which will provide greater flexibility in terms of financing the business. The company operates in multiple geographies, which will help them to mitigate the risks faced from a particular location with the profits generated from the other location. The company would be impacted due to the uncertainty created due to the Brexit, as it would result in customer loss and negatively impact the financial performance of the company, even in the case of “No- Deal” Brexit.

Over the course of 5 years (FY13 - FY18), the company’s net income surged from USD 72 million in FY13 to USD 273 million in FY18. Compounded annual growth rate (CAGR) stood at 30.55 per cent.
Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 142.75 (as on 22^nd November 2019), with high single-digit upside potential based on 1.91x NTM Price/Book (approx.) on FY19E book value per share (approx.) and 9.52x 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 = 0.77636 GBP.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 25^th November 2019).

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