Henderson ready for European Recovery

View of the Thames from the Waterloo Bridge, London, UKInternational fund manager Henderson Group has powered closer to an all-time high this month as equity flows build in Europe. The diversified manager of institutional and retail funds based in London has been reshaping the business since Australian Andrew Formica took the reins in 2008.

Against a backdrop of post GFC uncertainty, the near collapse of the Euro and the Retail Distribution Review in the UK, Henderson has rationalised fund offerings, acquired complementary businesses and boosted management capability and is now well placed for a more favourable cycle. Fund flows into equities have surged in recent months in Europe with September net flows to Henderson of  £1.2 billion boosting funds by nearly 2% with another 2.5% added by market appreciation. Total funds now sit at £70.8 billion. We think this trend is set to continue with the bulk of flow heading toward equities.

Quest portfolios bought Henderson back at A$1.90 in 2011. At that time Henderson consistently traded at a discount to peers mainly due to a mixed reputation in equities, poor distribution and lack of product diversity and scale. The discount is now closing.The acquisitions of New Star and Gartmore have addressed the scale issue however the business still lacks capability in global product where competitors are well established.

After such a strong re-rating (Henderson stock is up 85% calendar year) the focus is now on the outlook statements at the next annual result in February. Important issues to consider include remuneration levels after a strong performance and distribution year, the potential for acquisitions and competitive position in a hotly contested environment.

Our target price remains comfortably above current levels despite the strong performance this year.