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Jupiter and Hargreaves Lansdown results underline impact of weaker investor sentiment

Brexit uncertainty and concerns over growing global political and trade tensions have weighed on investor confidence recently
investor
Jupiter and Hargreaves Lansdown shares are in the red

Shares in Jupiter Fund Management PLC (LON:JUP) and Hargreaves Lansdown PLC (LON:HL.) slid on Thursday after quarterly results from the investment firms underlined the impact of weaker market sentiment.

Fund manager Jupiter said assets under management (AuM) fell to £47.7bn in the third quarter to September 30 from £48.3bn the previous quarter. The group was hit by net outflows of £800mln, offset particularly by a positive performance of £300mln.

Net outflows included £600mln from the fixed income strategy, mainly in continental Europe. Jupiter’s European opportunities and funds of funds strategies also saw outflows.

However, Jupiter saw positive flows into its European growth, value equities and absolute return strategies.

The firm launched several new funds in its fund of funds, European opportunities and multi-asset strategies as part of its effort to diversify its offerings.

Shares in Jupiter declined 5.8% to 355p in late morning trading. 

Hargreaves Lansdown points to industry-wide slowdown 

Investor confidence has weakened amid concerns over Brexit uncertainty, global political and trade tensions, and Italy’s debt.

FTSE 100 fund supermarket Hargreaves Lansdown PLC (LON:HL.), which added the Jupiter Global Value Equity fund earlier this year, touched on tough market conditions the sector is facing in its quarterly results.

Hargreaves chief executive Chris Hill said: “The past quarter has seen an uncertain market environment and weak investor sentiment resulting in an industry-wide slowdown in net retail flows. Despite this backdrop, we believe the strength of our business model positions us well for when sentiment improves."

The company still delivered a 3% rise in assets under administration (AuA) rose to £94.1bln in the first quarter to September 30, driven by net new business of £1.3bn. Hargreaves said its investment in digital marketing, higher client numbers and ongoing wealth consolidation on its platform boosted net inflows.

READ: Hargreaves Lansdown Q1 net revenue rises 16% in "uncertain market environment"

Positive market movements of £1.2bn also contributed to growth in assets.

However, shares fell 6.2% to 1,826p in late morning trading as the results missed analysts’ expectations.

Analyst highlights slowdown in net flows for Hargreaves Lansdown 

ShoreCapital said the trading update from Hargreaves was slightly weaker than it had expected and pointed to a slowdown in net new business. Last year’s net flows amounted to £1.54bn

“A weaker period of net flows on weaker investor sentiment and potential for a negative AuA adjustment from market movements, we think the current rating may take earnings some time to grow back into,” ShoreCap said, leaving its 'hold' rating and target price of 1,948p unchanged. 

“We would expect the shares to be down this morning (even if equity market hadn’t been weak overnight) and we will see what level they settle at before reassessing whether our current ‘hold’ recommendation should be more negative (the recent correction from 2,270p only a couple of weeks ago makes a ‘sell’ less likely).”

The broker also likes the look of the company’s recently launched cash marketplace service, Active Savings, which allows clients to find more attractive interest rates for their cash savings.

“While it is unlikely to make a material bottom line contribution in either Jun ’19 or Jun ’20, we think HL’s Active Savings service has the potential to revolutionise the £1trn+ cash savings market in the same way that HL transformed the funds market,” it said. 

ShoreCap considers upgrading Jupiter to 'buy' after share underperformance 

On Jupiter, ShoreCap also has a 'hold' rating and cut its target price to 377p from 460p. The broker said it views Jupiter's update as "weak" and expects to cut full-year forecasts by 3-4%.

"However, given the level of underperformance in the shares, and a further likely drop this morning, we sense an opportunity may be emerging," it said, adding that would consider upgrading its rating to 'buy'.

ShoreCap's current full-year forecasts are for full-year net outflows of £3.7bn, offfset by a positive contribution from investment performance and market movements of £1.3bn, to arrive at AuM of £47.8nn. 

"In our recent asset manager sector note, 'All business models are not equal (Aug ’18)', we again highlighted that Jupiter’s business model is not a good fit with our preferred themes for an active manager (we prefer a more explicit link between investment performance and fees in order to combat the progressive grind down in active annual management fees)," ShoreCap said.

"However, such has been the level of underperformance in the shares (down 40% since early January), we had suggested in our report that a share price under 420p would adequately capture the additional headwinds faced by Jupiter.

"Following a further fall since that time (the shares were 425p when the note was published), we think that there is now value at current levels even if we trim our 460p fair value and will therefore consider an upgrade from HOLD to BUY depending only on where the price settles this morning."

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