FTSE 250-listed hedge fund Man Group (LSE: EMG) is down 2.25% at time of writing despite publishing a positive set of results for the financial year ended 31 December today. But I for one still rate its prospects.
The market has judged Man harshly given that it has just posted a 35% rise in funds under management to $109bn, up from $81bn in December 2016. It also enjoyed net inflows of $12.8bn, against just $1.9bn one year earlier. Net revenues leapt 33% which management said reflected good absolute performance fee generation, with 7% growth in net management fee revenue.
Strong client demand for emerging market debt, FRM managed accounts and quant strategies boosted net inflows, while currency tailwinds and the acquisition of Aalto also did their bit.
Chief executive Luke Ellis hailed a strong year and pinned record net inflows on strong investment performance, its focus on building “deep client relationships” and efficiency, which helped to boost adjusted profits by 87%. He did alert investors to one downside, noting that recent market volatility has hit investment performance in some areas, particularly its momentum strategies.
My Foolish colleague Alan Oscroft reckons Man Group is a stock to buy and hold forever and highlights its healthy cash generation, saying this should help support strong dividend growth. Today management recommended a final dividend of 5.8 cents per share, bringing the total for the year to 10.8 cents, up 20% from 9 cents last year. The stock now offers a generous forecast yield of 4.8% for 2018, covered 1.7 times. Its share price is up 25% over the year.
Man Group looks an attractive package, especially as it trades at a forecast valuation of 12.5 times earnings. The underlying worry is that it could be punished by further stock market volatility: its shares hit a 52-week high of around 220p at the end of January before crashing in the February sell-off. Today’s 175p could prove an attractive entry point if, like Mr Oscroft, you also fancy buying and holding Man Group forever.
Wealth adviser Hargreaves Lansdown (LSE: HL) has made hay in the nine-year bull market run, its share price almost doubling in the past year to 1,725p, and rising 29% in the past 12 months. However, I suspect that Credit Suisse expressed the views of many investors in January, when it described the company as a great business whose valuation can no longer be justified. I expressed exactly the same concern in October last year.
Pricey but nicey
Hargreaves currently trades at forecast valuation of 34 times earnings in the year to 30 June 2018, roughly the same as it did then. Its PEG ratio is also toppy at 2.8. This matters as investor scepticism about the bull market continues to rise, and it is likely to be hit relatively hard in any sell-off as this scepticism will hit confidence among its investor customers.
Yet Hargreaves still has a good story to tell, with forecast EPS growth of 13% in 2018 and 14% in 2019. It currently yields 2.4%, covered 1.3 times, but with scope for progression as the yield is expected to hit 2.7% in 2019. Perhaps the next bout of stock market volatility is the time to buy it.