Citi double-downgrades Man Group shares to sell

6th May 2016 08:37

(ShareCast News) - Analysts at Citi took a knife to their recommendation and estimates for shares of Man Group.The -13% performance of the company's AHL fund since mid-February was described as "a particular disappointment".As a result, the broker tore up its previous forecasts for Man's earnings per share in 2016 and 2017, cutting them by between 35% to 40% to stand between 31% and 38% below consensus forecasts.Even after those revisions, Citi judged the shares to be "fully valued" given how they were trading at a price-to-earnings multiple 17.3 times the broker's profit forecast for 2016.That P/E multiple compared unfavourably with the shares' 10-year average multiple of 14.3.Without AHL, the fund manager's performance fee generation ability "looks challenged", Citi analysts Haley A. Tam and Owen E. Jones said in a research report sent to clients.That was also the main driver behind their decision to slash their estimate for the company's profit before tax performance-fee forecast from $181, to $64m.In turn, that revision drove their 2016 forecast for profits before tax down by 35% from $361m.Man's best option for solving "fundamentally subdued" funds under management and improving its outlook for earnings growth at its main franchises was to pursue acquistions.To that end, the company had about $500m of surplus capital on hand and no share buy-backs were planned for 2016."But we see execution as unlikely," the analysts added. Citi double-downgraded the shares to a 'sell' (from 'buy') and placed a 120p target price on the shares, down from 182p beforehand.