Credit Suisse Takes Neutral Position On Four Asset Managers

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Credit Suisse changed its ratings to Neutral on four asset managers Tuesday.

Analysts led by Craig Siegenthaler looked “for asset manager industry fundamentals to improve in 2015 – with profits generally aided from the overall market tailwind (p-fees, mix shift, margin expansion, capital mgmt, investment income), and valuations now cheaper across both the traditional and alternative asset management sub-industries as some investors started factoring in bear market potential (beta risk) in 2014.”

Siegenthaler also looked “for higher interest rates to potentially "shake-up" mutual fund net flow trends – towards higher fee generating equity and alternative products (repeat of taper tantrum in 2013).”

 

While industry fundamentals may improve, of the four ratings changes, Janus Capital Group JNS was the only upgrade to Neutral. The rating was based “on new guidance from JNS's CFO on its 3Q14 earnings call” and the firm estimated Janus “could be expecting a $15-25B y/y increase in sales levels in 2015.”

Siegenthaler downgraded Invesco Ltd. IVZ and noted that the “stock now trades at 14-15x 2015 consensus EPS estimates, and while the IVZ stock could trade at a modest premium if the company can generate 4-6 percent organic growth in '15, we now think additional valuation expansion from current levels is more difficult versus its 10-15 percent discount range in 1Q14.”

Apollo Global Management LLC APO was also downgraded to Neutral and given its contrarian/value-oriented investment process, Siegenthaler estimated “it will be difficult over the next 12 months for APO's private equity business to deploy its $33B of dry-powder and also rebuild and deploy its $1.5B of carry interest receivables which is down 40 percent from the 1Q13 peak of $2.5B.”

Siegenthaler estimated that the profits of Fortress Investment Group LLC FIG “are still depressed from the financial crisis. Accordingly, FIG's private equity business produced $275M of performance fees in 2007 (including $190M in 1Q07 alone), but since then has never produced more than $50M of performance fees in a calendar year.” The firm set a $9 price target on FIG.

All of the above stocks were lower Tuesday with Fortress Investment Group LLC falling the most, it recently traded at $7.66 down 4.37 percent.

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Posted In: Analyst ColorUpgradesDowngradesAnalyst RatingsTrading IdeasCraig SiegenthalerCredit Suisse
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