Heady ratios out of touch

Shareholders in Mercury Asset Management and Jupiter Tyndall have been on a roll since the markets decided last year that the companies were in effect up for sale. Jupiter's shares, already spectacular performers, were given an added spurt by news of the 420p-a-share offer from Commerzbank of Germany, which locked in a useful gain over the 303p they hit in October before the bid rumours started to circulate.

Takeover prospects have also buoyed MAM since it became clear at the end of last year that its owner, SG Warburg, was going to merge or be taken over. MAM's shares have risen from £6 to £9 since then, though they fell back again this week when it became clear that Swiss Bank Corporation's takeover of Warburg was going to leave MAM as an independent entity.

But not all the rest of the sector has joined in the party. Gartmore shareholders, for instance, have seen their shares lose around 7 per cent of their value in the past five and a half months. Edinburgh Fund Managers' shares have barely been able to keep pace with the market.

There are two reasons for this. Firstly, fund management share prices are already pretty fully valued on the basis of earnings. Prospective price-earnings ratios range between 15 and 16 times for the sector - although they range as high as 19 for MAM compared with 12 or 13 for the market. More particularly, valuations based on funds under management have become stretched.

As our table shows, there is a substantial amount of good will built into share prices. That has been inflated where investors sense a takeover is in prospect - at MAM, the good will premium (the difference between the share price and net assets as a proportion of funds under management) - has grown from 1.5 per cent in December to a peak of 2.1 per cent this week. Where there is a strong retail franchise, such as exists with M & G and Perpetual, the valuation seems to have lost touch with reality.

These heady ratios suggest to analysts like Martin Cross at UBS that bidders are unlikely to want to pay more for fund managers, even if there are any more available to buy. For the second problem facing predators is that most groups are in effect locked up with friendly shareholdings.

The long-standing Esmee Fairbairn Charitable Trust holds the key to M&G with a 34 per cent stake. Henderson Administration has 22 per cent of its shares held by investment trusts it manages, and at Perpetual, which disappointed with a mere 3 per cent interim profits uplift on Thursday, its founder, Martyn Arbib, controls around two-thirds of the equity.

German banks, keen buyers of fund managers in the past, may now have had their fill. The Dutch bank ABN Amro has apparently been a disappointed suitor in the past and NatWest plainly still nurtures an interest in picking up MAM, but shareholders who are holding their breath for a bid at over 900p now look like they are going to be disappointed.

PROMOTED VIDEO
Voices
Ukip leader Nigel Farage arrives at the Rochester by-election count
voicesIs it any wonder that Thornberry, Miliband, and Cameron have no idea about ordinary everyday life?
Life and Style
tech
News
i100BBC political editor Nick Robinson had a lot of explaining to do
Life and Style
Nappies could have advice on them to encourage mothers and fathers to talk to their babies more often
newsTalking to babies can improve their language and vocabulary skills
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

Immigration: Obama's final frontier

The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

Bill Cosby rape allegations explained

Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

You know that headache you’ve got?

Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

Scoot commute

Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
Paul Robeson: The story of how an American icon was driven to death to be told in film

The Paul Robeson story

How an American icon was driven to death to be told in film
10 best satellite navigation systems

Never get lost again: 10 best satellite navigation systems

Keep your vehicle going in the right direction with a clever device
Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

Paul Scholes column

England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

Michael Dawson: I’ll thank Spurs after we win

Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

Frank Warren column

Dr Wu has big plans for the professionals yet he should stick to the amateur game
Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

Terror unites Jerusalem after synagogue attack

Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

'How do you carry on? You have to...'

The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
Isis extends its deadly reach with suicide bombing in Kurdish capital

Isis extends its deadly reach with suicide bombing in Kurdish capital

Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
Underwater photography competition winners 2014 - in pictures

'Mysterious and inviting' shot of diver wins photography competition

Stunning image of cenote in Mexico takes top prize
Sir John Major: Negative West End portrayals of politicians put people off voting

Sir John Major hits out at theatres

Negative West End portrayals of politicians put people off voting
Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

Kicking Barbie's butt

How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines