Most of the listed European and British management companies have already published their results for the third quarter of 2022. Overall, the mood is “sluggish” to use the words of Stefan Hoops, the managing director of DWS, the manager of Deutsche Bank. Outstandings are unchanged or down even if the fall is less steep than expected. The scale of the net outflow of 2022, although slowed in its progression, extends to almost all the management houses on the continent and across the Channel.
And while earnings for listed European and UK asset managers haven’t bottomed yet, they should bottom soon. This is the thesis defended by certain analysts in the asset management sector, including RBC Capital Markets.
“2022 has been a challenging year for asset managers as the deteriorating macro-economic and geopolitical environment has prompted investors to push back the earnings trough period for the sector, which we now expect in our estimates for 2023. », writes the firm in a note dated October 18. Listed European managers (UK managers included) saw their share prices fall by 38% and their assets under management contract by 10% overall between January and mid-October 2022, RBC Capital Markets points out.
Analysts are projecting a 12-month P/E ratio of 9.8x for the sector, suggesting “only a deterioration in the ratio of around 20% over the year”. RBC Capital Markets has cut its revenue forecast for European and UK asset managers by an average of 2% in 2022 and 6% for the following years.
For example, RBC Capital Markets estimates for earnings per share of abrn, Amundi and DWS and Schroders over the period 2022-2024 have been reduced by 13%, 10% and 6% and 11% respectively. on average. Target prices on these stocks have also been lowered in the projections.
English managers facing the torments of local markets
The evolution of UK managers listed on the frontline of the defined benefit pension crisis (DB scheme), including abrdn, M&G and Schroders, is under close scrutiny. RBC Capital Markets expects an acceleration in the strategic reallocation of portfolios, linked to the reduction of risk due to the recent troubles in asset-liability management (LDI) strategies and high market volatility. Local institutions should cut risky asset classes such as equities, multi-asset and alternative funds in favor of bonds and money market.
Bank of America analysts remain “cautious” on UK managers listed post-Q3 2022 reporting. “Results were mixed as Man Group, Ninety One and Jupiter exceeded expectations but not Schroders and Ashmore. We have reduced our earnings per share guidance by 5-6% on average due to earnings, mark-to-market valuation, weaker Q4 cash flow outlook and a tax rate reversal in the UK”writes Bank of America, which expects Schroders to be the most impacted.
Man Group stands out
Turning to estimates for 2023 earnings, listed UK asset management is approaching its low point with an 11x price-earnings ratio, Bank of America said. A reassessment of managers’ ratings remains unlikely as long as markets and rates have not stabilised. Bank of America analysts also foresee a drop in operating margin of more than 5% (over a rolling year) in the UK listed manager sector for 2023, unless managers’ performance fees prove robust.
Man Group remains their number one bet with a 9x P/E estimate for the firm’s early 2023 results. According to Bank of America, the alternative manager retains the biggest upside potential and its flows should normalize quickly in 2023 thanks to the strong performance of alternative funds. Conversely, the institution maintains its underperforming opinion on Ashmore, Jupiter and abrdn due to persistent outflows and a neutral opinion on Schroders and Ninety One.
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