LONDON (ShareCast) - (ShareCast News) - Jefferies downgraded Aberdeen Asset Management to 'underperform' from 'hold' on Thursday but raised its target price to 254p from 240p as it took a look at the sector.
Aberdeen reported better-than-expected assets under management in its third quarter results and the company has benefitted from a weaker sterling. Jefferies therefore has raised its earnings per share estimate by 8% in 2017.

"However the impact of a weaker sterling is attenuated by Aberdeen's sizeable non-sterling cost base," the broker said.

"Furthermore, driven by sentiment towards the sector and emerging markets, the share price has more than priced in these benefits. Hence, despite our price target upgrade, we downgrade Aberdeen to Underperform. "

On the wider sector, Jefferies said it is unwinding much of its post Brexit bearishness for the traditional institutional asset managers. Immediately after the UK voted to leave the European Union, the broker downgraded estimates on worries a "decision making hiatus would sap inflows".

"Indeed, the sharp sector rally since would have left little upside to our price targets but for strong Q3 flows," the bank said.

"Whilst such high inflows are unsustainable, the third quarter gives us confidence to upgrade our estimates and reverse the post Brexit vote bearishness."

Jefferies said it prefers "diversified high quality" companies Schroders and Jupiter Fund Management, reiterating a 'buy' rating for the stocks. The broker raised its target price on Schroders to 3,112p from 2,705p and increased the target price of Jupiter to 491p from 406p.

"In an environment where uncertainty is high; there is an ongoing competition review by the FCA and regulatory capital requirements are edging up for the sector, we prefer the safety and certainty that diversified high quality names like Jupiter and Schroders provide."

Jefferies also considers Man Group a "value play" with "defensive qualities". While the performance of the group's investment manager business AHL remains a drag on sentiment, this is more than fully reflected in the share price, Jefferies said.

"Moreover, Man is making the right moves to diversify away from its reliance on AHL.

"In this context we particularly like the foray in to private markets (triggered by the acquisition of Aalto) which provide a more stable institutional source of funds under management. "

Jefferies added that Man's conservative approach to rising capital requirements with a $300m surplus provides it with a defensive angle.

The bank reiterated a 'buy' rating on Man and lifted its target price to 143p from 141p.

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