Shares in Liontrust Asset Management (LSE:LIO) fell 6% to 251.56p after Deutsche Bank downgraded the group to sell, arguing that the market is overly optimistic about the prospects for a recovery in fund flows.
The bank cut its recommendation from hold and slashed its target price to 175p from 250p, implying downside of more than 30% from Monday’s close. Deutsche said investors appear to be pricing in a turnaround that it does not believe will materialise.
At the heart of the downgrade is a more pessimistic view on net fund flows, the key driver of revenues for asset managers.
Deutsche said that challenges previously thought to be cyclical now look structural across Liontrust’s core investment franchises. In its view, there is no clear catalyst that would reverse the multi-year trend of net outflows.
That assessment puts the bank well below current market expectations. Consensus forecasts imply a stabilisation and eventual recovery in flows, which helps explain why the shares trade on a seemingly modest valuation of about 6.6 times forecast earnings for the 2027 financial year.
However, Deutsche Bank cautioned that a low price-to-earnings multiple is not, on its own, evidence of value. Without renewed inflows, earnings risk continuing to drift lower, making the shares look cheap for the wrong reasons.
The analysts said that operational issues within key strategies are weighing on performance and client confidence, and that these problems are proving harder to fix than previously assumed. Until there is tangible evidence of improving flows, they see limited scope for a sustained re-rating.