When you can’t decide which companies in an industry are likely to do best, it can pay to look for ‘picks and shovels’ firms operating in the same sphere. The name stems from the old gold rush days, when those selling the tools did well, regardless of who found the precious metal.
I think it’s the same with the FTSE 100 as a similar approach can provide a hedge against uncertainty. And the FTSE 100 has been plagued with uncertainty for years now.
I was pleased to see Man Group (LSE: EMG) heading the FTSE’s early risers Wednesday morning. At the time of writing, Man shares are up 7% on the day. And over the past 12 months, as Brexit has been approaching its endgame, shares in the investment manager are up 13.5%. Over the same period, the FTSE 100 has managed 3.5%
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Man shares have been more volatile over the year though, and I think that’s something we just have to expect if we invest in this kind of company. But if we’re in it for the long run, short-term ups and downs really don’t matter.
Brightening outlook
Man Group shares have been through a weak patch in recent years, mind, as its earnings have lurched up and down. But if City analysts are anything to go by, the company should be set for a few good years. Results for 2019 should be with us on 28 February, and forecasts suggest we’ll see EPS rising by around 50%.
That would put the shares on a P/E of 11.6, which I think is low even considering the volatility. The P/E would drop to 10 on 2021 forecasts, and I think that is just too cheap.
Man looks set for great dividends too. There’s 4.3% on the cards for the year just ended, rising to 5.5% by 2021.
Bigger gain
Whenever I look at Man Group, I always seem to see St. James’s Place (LSE: STJ) as well. Over the past 12 months, St James’s shares have beaten Man, with a 20% gain. We’ve seen similar volatility in recent years too. But I do expect the rest of 2020 to be tough on the UK’s stock markets. And I think that could give St. James’s a similar boost.
The firm’s business model is different to Man’s and, I think, complementary. St. James’s Place provides wealth management services, and that includes offering bespoke advice to various levels of clients.
That’s a segment of the business that I think will see increasing demand, especially if we’re in for further economic uncertainty in the coming years. And if we should end up with a worst-case Brexit trade result, I could see the queues of clients lengthening.
Outlook
Results for 2019 should arrive on 27 February, after a positive Q4 update at the end of January. At 31 December, funds under management were up 22% on the same point a year previously, to £117bn. The firm’s count of qualified advisers was up too, by 8% to 4,271.
Chief executive Andrew Croft said the company has been seeing “improved investor sentiment and activity” since the election, and I reckon that also points to a good 2020.
P/E multiples are a lot higher, at 24 based on 2020 forecasts. But with future earnings growth on the cards, and progressive dividends set to yield 4.3%, that could still be good value.
