Shares in BT Investment Management Ltd (ASX: BTT) rallied 2.1% to $11.10 this morning, but the stock is still looking vulnerable since hitting a three-month low on Friday of $10.87. This was on the back of growing speculation that the listed fund manager won't be able to collect as much in performance fees as the market is anticipating.
Sentiment towards BT won't be helped by the fact that the stock had broken below its support of around $11 as well and looks like it's firmly on a downtrend despite this morning's bounce.
But at least one broker thinks the stock is primed to sustain its outperformance in the short-term and is urging investors to jump on board for the ride. Morgan Stanley estimates there is a 60% to 70% chance that BT will continue to rally and outpace the broader market in the next 55 days or so because the stock has been oversold in its opinion.
The magnitude of BT's gains this morning suggests that there is some pent up demand for the stock as it is outperforming its peers like Platinum Asset Management Limited (ASX: PTM), which is up 1% at $4.96, and Magellan Financial Group Ltd (ASX: MFG), which is trading 0.4% higher at $27.18.
Morgan Stanley thinks BT is trading at a compelling valuation to its $13.50 target price and it thinks fears over fees are misplaced. In fact, the broker sees upside risk to its circa $1.1 billion retail flow forecast for BT's JOHCM business in FY17 as it estimates that the company has already collected that much in April and May, based on its fund factsheet analysis.
It also believes that JOHCM's (its offshore funds business) performance fees are tracking in line with its ~$33 million forecast and that BT's Australian funds' performance fees in the second half of this financial year could come in slightly above Morgan Stanley's estimate of around $7 million.
But investors might have to wait until the upcoming August reporting season to see this bet pay off as consensus outlook for the company is quite diverse. This has essentially risen the risk profile for BT and is one of the reasons I have taken profit and closed my position on the stock.
I like the story but I think the latest jump in the share price could be a dead cat bounce. If you are looking for better investment alternatives, see below to find out what stocks the experts at The Motley Fool have on their shopping list.
