Jupiter Fund Management (LSE: JUP) is an active asset manager and with the rise of passive investment funds such as those from Legal & General, it’s understandable why investors may be concerned about the prospects for a company like Jupiter. Certainly, the shares until recently had been struggling, over five years they are still down nearly 11% despite a recent rebound. So far this year the share price is up 26.5%, with much of the impetus coming after recent full-year results.
Why did the shares rocket?
The results released last week weren’t overwhelmingly positive, but despite that, the shares surged. Why was that when the full-year profit, assets under management (AuM), and even the dividend fell? Could it be that canny investors have spotted something the rest of us missed and does that mean we should all be piling in?
It was the fact the dividend was still higher than expected that seemingly pleased investors. That hardly sounds like a business in great shape or worthy of being part of an investor’s portfolio – at least from my point of view. It’s difficult to recommend investing in a shrinking business, thereby reducing the safety margin for any new investor. And it’s even harder to recommend it when the share price is going up.
The company’s results showed in the year to the end of December 2018, pre-tax profit fell by £13.7m to £179.2m as assets under management declined 15% to £42.7bn amid net outflows of £4.6bn.
The last update before the full-year’s results showed that in there were £1.5bn of net outflows in the last quarter of 2018 as weak markets led to £5bn fall in assets under management to £42.7bn. The largest proportion of the business, mutual funds, was the hardest hit as well, which doesn’t bode well for a future recovery in the business.
This is especially the case given that the results for the year ended December 2017 were much brighter – so the firm has been seeing a marked deterioration in performance in the last 12 months. In 2017, profit before tax increased 13% to £192.9m and total dividends per share of 32.6p, an increase of 20%.
What should an investor do?
Overall, this confusing position – where the company is making less profit but has a rapidly rising share price – doesn’t to me make it a good investment case. I don’t see how now it could possibly be the time to buy the shares, despite a fairly low P/E of 12 and a dividend yield which is over 4.5%. Signs of an improvement at Jupiter under the leadership of a new CEO, Andrew Formica, may change my opinion, but evidence for that currently doesn’t exist.
It’ll be interesting to see what the new CEO intends to do with Jupiter to stem the amount of money leaving the business and how it positions itself against passive funds. Ironically, in the same week as Jupiter said it was shrinking, rival Legal & General became the first UK £1trn fund manager – showing investors are keen to invest – just not with Jupiter.