Barclays on U.S. Brokers: Asset Managers Cheap but Overhangs Remain; LM/TROW Meeting Recaps

Barclays on U.S. Brokers, Asset Managers & Exchanges: Asset Managers Cheap but Overhangs Remain; LM/TROW Meeting Recaps

Analyst, Roger A. Freeman, said, "Earlier this week, we meet with the senior management at Legg Mason (NYSE: LM) and T. Rowe Price (Nasdaq: TROW). Among the key takeaways, TROW was somewhat cautious about the macro environment, and indicated retail investors have gone back to the sidelines again, and institutions remain slow in allocating capital. As a result, TROW is managing expenses for slow growth and sideways markets. That being said, TROW continues to post peer leading fund performance, and is investing in organic growth internationally and in fixed income. Turning to LM, management highlighted performance improvement, especially at Western, and commented on finals and discussions around specialized mandates, which was consistent with the last earnings call commentary. We also found LM management to be positive regarding recent achievements, namely expense restructuring with the affiliates and capital deployment through buybacks. Going forward, LM expects a higher stock price will give it a better currency to do acquisitions."

"We continue to view the group as attractively valued at a 2012 P/E average of 12x, or a 98% relative market multiple. Going forward, we believe asset managers can outperform the broader equity market, which is expected to increase 6% in 2012 (based on our equity strategist's newly established S&P500 target of 1,330). We note however our team does not expect a linear increase, instead forecasting a more challenging, range-bound market in 1H12 with a 1,150 mid-year target. Within the group, Invesco (NYSE: IVZ) remains our favorite asset manager. We believe IVZ deserves a premium to peers, as it is among the best-positioned asset managers and is poised to outperform the industry's long-term growth. Nearer-term, we also expect to see momentum build on flows post the completion of the Van Kampen and AIM fund merger."

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