UBS Upgrades Man Group to 'Buy' on Strong AHL Fund Performance and Buyback Potential

UBS upgraded Man Group (EMG.L) to "Buy" from "Neutral" on Thursday, arguing that a recent surge in the performance of its key AHL funds has not been fully reflected in the company's share price. The investment bank also raised its price target on the stock to 365 pence from 335 pence.

Strong Performance Drives Upgrade

Analysts at UBS highlighted that Man Group's four main AHL strategies have gained an average of 7% on an assets-under-management weighted basis over the past six weeks. This performance, which outpaces the bank's own annualized return forecast of 6.5% for the division, has yet to be factored into the stock's valuation, according to the note.

The bank pointed to the AHL Evolution fund as the strongest performer, returning 14% since the first week of August. All four primary AHL strategies are now trading above their high-water marks, a critical threshold for generating lucrative performance fees.

Revised Estimates and Shareholder Returns

This strong performance led UBS to significantly increase its earnings per share (EPS) estimates for Man Group. The bank's new forecasts are:

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• 2026 performance fee EPS: raised by 13%
• 2027 performance fee EPS: raised by 32%
• 2028 performance fee EPS: raised by 12%

These revisions place UBS's 2027-28 EPS estimates 28%-29% above the current market consensus. UBS anticipates that stronger performance fee income will also fund a modest increase in share buybacks, projecting that 85% of these earnings will be used for repurchases. This could imply an annual buyback of approximately 5% of the company's shares in 2027-28.

Valuation and Outlook

UBS noted that Man Group shares currently trade at 12.8 times its 2027 management fee earnings estimate, a valuation that is more than one standard deviation below the stock's seven-year average. The bank's analysts believe this valuation implies almost no contribution from performance fees, a view they contest given the AHL funds' recent success.

The new price target of 365 pence implies roughly 15% upside from the September 16 closing price. UBS identified a reversal in AHL's recent strong performance as the main risk to its thesis. The bank sees Man Group's third-quarter assets under management (AUM) update on October 16 as a potential near-term catalyst for the stock.