Should I Buy Man Group?
Feb 25th 2013 10:18AM
Updated Feb 25th 2013 11:40AM
LONDON -- It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. Should I buy Man Group ?
It's been a turbulent few years for hedge fund manager Man Group. Its share price is down 80% over the last five years, 60% over two years and 20% over the last 12 months. But it has picked up lately, rewarding contrarians by rising 40% over the last six months to 107 pence. Is now the time for me to "Man up"?
Computer says no
As the above numbers show, Man Group isn't for widows and orphans. But the most eye-catching number is its dividend, which is a heart-stopping 13%. You won't need me to tell you that signals trouble below stairs. Its flagship AHL fund, a computer-traded fund, has suffered a flood of exits after two years of miserable performance. Even Man Group's fat dividend was cause for concern, as investors questioned how long it would remain affordable. It ended in a shareholder revolt last May, including a protest vote over executive pay. Chief executive Peter Clarke was given nine months to turn things round and was gone by December. Since he presided over an 85% drop in the group's share price since taking charge in 2007, many investors have seen this as good news. He is to be replaced by Manny Roman, founder of hedge fund GLG, which Man bought in 2010 for 1 billion pounds.
Man Group's share price may be heading in the right direction at last, but its troubles continue. It has just called in KPMG as an internal auditor, which it claims is standard practice, although most view it as an attempt to mend reputational damage. Despite the recent share price recovery, this clearly isn't a company for faint hearts. So what do the other numbers say? Its earnings-per-share growth has been terrifyingly volatile, with falls of -48% in each of the last two calendar years. At least it looks fairly cheap, trading at a price-to-earnings ratio of 11.3 times earnings -- and then, of course, there is that dividend, but watch out; it is only covered 0.7 times.
Wham bam, no thank you, Man
I've never been a big fan of hedge funds, or hedge fund stocks. Too many managers fail to live up to their mystique, or justify their fees. Broker views on Man Group are mixed. Bank of America rates it a buy, although it recently lowered its target price to 168 pence, from 200 pence. Credit Suisse has just reaffirmed its neutral rating, while lifting its target price from 94 pence to 104 pence. This stock looks too much of a speculative gamble to me, especially since there are more solid growth opportunities out there right now, including this current Motley Fool favorite. Our share analysts believe they have found the single best U.K. growth stock of this year. They are so impressed, they have named it "Motley Fool's Top Growth Share for 2013." If you want to know its name, simply download our free report. It won't cost you a penny, so click here now.
The article Should I Buy Man Group? originally appeared on Fool.com.Harvey doesn't own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.