IVZ Is 'The Poster Child For Uncertainty In The U.K.'

Invesco Ltd. IVZ saw a 13 percent decline in its share price on June 24, with a year-to-date decline of 24 percent.

Citi’s William R. Katz downgraded the rating on the company from Buy to Neutral, while lowering the price target from $38 to $27.

Stock Range-Bound

Katz mentioned that despite the pullback, the stock offers a robust yield of 4.5 percent and several compelling long-term strategic benefits.

However, the analyst also cautioned that the stock was currently since “1) investors likely contemplate knock on impacts from ‘Brexit’ with no quick answers; and, 2) believe the flow, fee rate and incremental margin dynamic will soften.”

Given the meaningful uncertainty, the analyst expects the stock to see “a sustained period of relative underperformance and limited absolute upside.”

Related Link: Post-Brexit Analysis Shows Many ETFs Did Their Jobs

Poster Child For Uncertainty

In fact, Katz termed Invesco “the poster child for uncertainty in the U.K./European economies,” given that the U.K. and Europe account for 23 percent of the company’s AUM and a higher percentage of its earnings.

“Based on Citi’s underlying house view around related Equities, downside to regional GBP prospects, further weakness expected for the GBP and contagion risks – and related timelines around the U.K.’s exit from the EU and angst around other potential regional referendums, we think the shares are likely rangebound,” Katz stated.

The analyst expects the company to see weakening fee rate, flow and incremental margin drivers.

Although the U.K. and Europe had been positive flow contributors over the past couple of years, the analyst now believes the volume contribution will ease due to increased volatility, with less differentiated growth over the next few years.