Henderson unsettles investors with mixed report
Asset management group slumps as brokers downgrade after FD resignation and disappointing profits, but New Star integration pleases
Henderson management this morning said it sees pretax profits for the first half of the year in the region of £25 million-£28 million, implying a 50% drop compared to the previous year and suggesting consensus forecasts for full-year profits of £71 million need to come down.
The company also announced finance director Toby Hiscock is to step down in September after 17 years with the company—a move that several analysts expressed disappointment in, to be replaced by current chief operating officer Shirley Garrood.
On a more positive note, however, Henderson said the integration of New Star is progressing “very well” and that asset retention levels are around a better-than-expected 77%, that the cost income ratio has been reduced to 38% as at 1st July and that current management fee run rate is £48 million.
At Arden Partners, analysts Jeremy Grime and Sarah Spike this morning told clients that to extrapolate the company’s first half expectations would imply a full-year figure of just £56 million if assuming no recovery in the second half—22% lower than consensus. Given that New Star has only contributed to one of the first two quarters, however, would suggest this assumption would be “overly harsh,” the analysts pointed out, and as such they plan to speak directly with Henderson before deciding by how much to downgrade their estimates.
Arden views today’s news as “very negative,” despite New Star’s asset retention levels, thus taking into account the pretax profit disappointment, the finance director’s resignation and the stock’s strong run up ahead of the update, the analysts today downgrade their recommendation to Sell from Buy.
Altium Securities’ Catherine Heath has also reduced her recommendation this morning—to Hold from Buy—but on valuation grounds rather than as a reaction to Henderson’s operational performance.
Heath said in a note to investors this morning that the update on New Star’s integration is “very positive” and that alongside the guidance on first-half profits this gives her confidence in her full-year estimate of £64.4 million, which is some way below consensus. “We see downside risk to our estimate, but envisage positive operational news to be of greater importance for the share price,” Heath said.
Following the recent share price outperformance, Altium has upped its price target to 106p from 100p while cutting its stance to Hold. However, the broker continues to see Henderson as a core sector holding and “would not hesitate to turn Buyers again in the event of us having more confidence on market levels or fund flows.”
Heath also stressed that consolidation opportunities remain abundant and said today’s update should provide investors with confidence that Henderson can acquire well in the future.
Amongst other asset management firms updating the market today were Ashmore Group, which said results for the full year are to be in-line with management expectations, and BlueBay Asset Management, which pleased by revealing fourth quarter funds under management increased by 35% quarter on quarter and as such it also sees its full-year performance in line with expectations.
At 9.30am, Henderson had slumped 13.3% to 90p to be the FTSE 250 index’s main casualty and Ashmore had shed 3.5% to 201.25p. BlueBay, meanwhile, was among the top mid-cap risers with a gain of 4.8% to 220.25p.
