Henderson Group (ASX: HGG) Swept Up in Brexit Fear

As measured by share price, Henderson Group (HGG) has had a poor start to the year. HGG is a fund manager based in the UK listed on both the LSE and ASX. Its price started to recover in mid-May but is falling again, probably due to Brexit fear, and is now trading not far above its 52 week low. Markets have become very skittish about the Brexit vote in the last few days due to polling showing a ‘leave’ vote is likely. It seems likely that the market is overreacting to this situation and it may well provide a buying opportunity.

As of the first quarter this year, Henderson group had assets under management of £92.7bn which was an increase on the previous quarter despite net outflows of £0.7bn. The current forward P/E of around 15 times is significantly lower than the trailing 12 month P/E of 21, indicating significant expected earnings growth. The chart below shows stable gross and EBITDA margins over the past several years, despite revenue growth, and strong increases in earnings per share over the same period. The price to book of 2.7 is on the high end relative to peers however this is probably justified due to the strong revenue and earnings growth. The dividend yield above is based on the beginning of year share price; at current prices this yield is somewhat higher. The company is currently paying out around 70% of earnings leaving enough for the company to use to fund growth. All indications are that the financial credentials of HGG are as strong as ever, and a sell down in share price due to Brexit fear may be unwarranted.

Buying on event related fear I believe to be a very effective investment strategy as long as you are investing in strong companies. The financials of HGG may fit the criteria for a ‘strong’ company. The company has recently announced a share buyback of up to £25m worth of shares over the next 6 months which should provide some price support and reduce outstanding shares. Notwithstanding this, buying into a falling stock can be risky and trying to pick bottoms in stock prices is a fool’s game. Needless to say, HGG is a stock that is on our radar.