Man Group: Still Good Value

We last looked at Man Group (MNGPF.PK) on the 23rd March 2009 (208.75p). The stock was at that stage already recovering nicely from its 12 month low of 150p and was set to enjoy further progress as sentiment to equities and financial stocks in particular, improved. On reflection, looking at the headline stock percentage return, (the stock is now at 255p) it appears to be a most satisfactory return for EMG shareholders but the progress seems strangely unfulfilling relative the profits that could have been made, not least when you consider the stock nudged 300p just 2-3 weeks ago. But investors remain confused, such is the mix of Man’s company specific data.

On a positive note, the corporate strategy remains focused, the dividend was maintained, risk appetite for complex investment products is slowly returning and the management team is one of the best in the business. These upbeat themes are unfortunately significantly diluted by the fact that net management income for the year to 31st March 2009 was 23% lower at $885m relative to the prior period. Even more depressing was net performance fee income, which crashed 62% to $358m. So the question remains has the stock made gains on the back of the wider market rally or are buyers returning to the EMG stock confident the most recent report was some kind of income nightmare, a financial anomaly, not to be repeated?

Man Group management offer useful guidance and persuade me the future is bright. New products, with a focus on transparency and flexibility are being launched. The cash situation remains secure, proven by the firm’s willingness to pay a dividend against the expectations of many and private investor inflows continue to grow. The strong brand of Man should also help attract new shareholders going forward as investors, spooked by the Madoff and Stanford episodes, seek hedge fund managers with strong compliance and corporate governance policies.

Man’s strong guaranteed product portfolio also sets it apart. Two years ago Man would have been quickly nominated as an acquisition target. But with mega-cap bank balance sheets still vulnerable, the likelihood of a near-term acquisition has faded but sooner or later a global bank will look at Man’s solid proposition and will be sorely tempted to make a move to add-on in one swoop what would otherwise take a decade of organic investment to develop. The near term direction of the stock is unclear, but if I bought at 208.75p four months ago, I would gladly retain the stock for the long term, rather than take a relatively small profit. Day traders, on the other hand, could have had a field day with EMG in recent months such is the stocks inclination to run, retreat and bounce again, riding the changing tide of investor confidence.