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UBS downgrades Jupiter Fund Management as fund flows reverse
UBS downgraded Jupiter Fund Management to 'sell' from 'neutral' and cut the price target to 460p from 545p as fund flows reverse.
The bank said it expects lower inflows as a result of the recent outflows from its Dynamic Bond fund. UBS cut its 2019 earnings per share estimate by 6% and said Jupiter's shares should suffer from a de-rating given the historical correlation between its fund flows and price-to-earnings multiple.
It pointed out that year-to-date, the Dynamic Bond fund has recorded £781m of outflows.
"With £3.9bn of inflows captured by the fund in 2017, there is the real possibility outflows could continue, which would put downside pressure on our earnings estimates. Our below-consensus estimates assume £315m of inflows for this fund for the remainder of the year, which would be a sharp turnaround from recent activity."
UBS said a number of bond gurus have argued that the 30-year bull run in fixed income is coming to an end, saying this should have negative implications for Jupiter's Dynamic and Stategic bond funds, which have accounted to around half of the 18% annual assets under management growth the company has reported in recent years.
"Trading at 14.2x 2019 consensus earnings, the company is effectively pricing in net inflows of 10% (as a % of AUMs) for the coming year. We forecast net inflows of 2% for 2018 and 3% in 2019/20, which implies a forward P/E multiple of 12.3x."
At 1500 GMT, the shares were down 0.9% to 526.40p.