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Mixed fortunes at Henderson

BROKERS' TIPS: Assets under management up, but high margin work decreases
October 26, 2010

What's new:

■ Assets under management up 5 per cent

■ Decrease in higher margin work

■ Low margin business improves

IC TIP: Hold at 134p

Anglo-Australian investment manager Henderson enjoyed a 5 per cent increase in assets under management in the third quarter, although this has to be weighed against a 13 per cent increase in the FTSE 100 over the same period.

High margin mandate funds saw a £1.4bn net inflow to £34.5bn; a little below analysts' expectations, but this was complemented by better than expected inflow of £1bn (to £17.7bn) into lower margin products. Outflows included £200m from Pearl Group as part of the run-off in funds away from Henderson. Pearl has £1.4bn of funds remaining with Henderson, which are expected to be withdrawn at some point.

Management reckons that risk appetite among both retail and institutional clients remains low, but Henderson continues to see healthy demand for fixed-income credit products and property investments. Recently a new fund was set up by Henderson Global Investors to buy as much as £750m of the £1.5bn Westfield Stratford shopping centre put up for sale by Australian retail developer Westfield. The deal follows a similar move last year when Henderson bought a £210m stake in the Bullring centre in Birmingham.

Numis Securities says...

Reduce. The mix of less higher margin work and more lower margin mandates suggests that pre-tax profits could be down by around 3 per cent, although a recent mark-to-market valuation would probably offset this. However, Henderson is trading on only a modest discount to the sector average PE ratio (12.5 times earnings versus 13 times), and given its weaker than peer group growth profile, we feel this discount should be wider, prompting our move from hold to reduce. Expect full-year pre-tax profits of £114.3m and EPS of 10.8p. Target price of 118p.

Credit Suisse says...

Outperform. Henderson has done well to attract new inflows in the last quarter, with property, fixed income and UK retail funds all recording good inflows. What's more, the investment performance has been impressive, with 72 per cent of equity funds and 79 per cent of fixed income funds achieving or beating their benchmarks over the past three years. Other highlights include US Wholesale, where 98 per cent of funds outperformed the three-year benchmark. Against this, legacy New Star funds continue to underperform. Expect full-year EPS of 11p.