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Margin pressure at Man Group

Despite the boost in performance fees, Man's strategy will put pressure on margins.
July 30, 2015

The market responded positively to Man Group's (EMG) half-year results, sending the shares up 9 per cent on news that the algorithm strategies of its AHL division had netted $162m in performance fees. Less impressive was AHL's performance in the second quarter of the year, which reversed the first quarter's gains.

IC TIP: Sell at 162p

And despite beating consensus estimates - adjusted pre-tax profit was up 89 per cent to $280m (£179m) - management remains downbeat on current trading conditions. Chief executive Manny Roman said April "marked a turning point for market behaviour", as concerns over a looming Grexit negatively affected bond, equity and currency markets. This led to varied performance across Man's four investment management strategies.

The total fund gross margin also decreased from 131 basis points last year to 107 basis points, due to a shift towards lower-margin products and the $6.1bn spent acquiring assets including Bank of America Merrill Lynch's fund-of-funds business. Management expects margins to continue to narrow as the group sells more open-ended alternative products to institutional investors.

Analysts at Numis forecast full-year pre-tax profit and EPS of $338.3m and 16.6¢ respectively, down from $474.7m and 24¢ in 2014.

MAN GROUP (EMG)

ORD PRICE:162pMARKET VALUE:£2.75bn
TOUCH:162-162.2p12-MONTH HIGH:218pLOW: 108p
DIVIDEND YIELD:4.5%PE RATIO:11
NET ASSET VALUE:134¢*NET CASH:$519m

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20145001065.14.0
20156251637.65.4
% change+25+54+49+35

Ex-div: 13 Aug

Payment: 2 Sep

*Includes intangibles of $1.56bn, or 92¢ a share. £1 = $1.56