The Goodman Group (ASX: GMG) share price is out of form on Wednesday.
In afternoon trade, the integrated property company's shares are down 1% to $19.32.
Why is the Goodman share price dropping?
Today's weakness in the Goodman share price may have been driven by a broker note out of Goldman Sachs this morning.
According to the note, the broker has retained its sell rating but lifted its price target slightly to $13.31.
Based on the current Goodman share price, this implies potential downside of 31% for its shares over the next 12 months.
Why is Goldman bearish?
Goldman has been looking at the company's valuation and particularly its Funds Management operations.
It commented: "We estimate that GMG's current pricing values its Funds Management operations at 26% of its Mar-21 external AUM balance or 32x FY22E Management EBITDA. This compares to an average of 8% (or 20x FY22E fee-related EBITDA) for US-listed Alternative Asset Managers covered by GS. Relative to traditional fund managers and transactional evidence, GMG's valuation premium is even more pronounced."
And while the broker acknowledges that Logistics asset valuations remain strong, it still isn't enough for Goldman.
"Pricing of Logistics assets remains strong (as demonstrated by recent transactions in the Australian market in particular). However, we estimate that the weighted average cap rate of both GMG's AUM and its co-investments would need to tighten to just 2.5% (vs. 4.7% at Dec-20) in order for GMG's current pricing (as a % of AUM) to be in line with the average price paid for Australian RE Fund Management groups in M&A transactions since 2010," the broker said.
In light of this, it sees no reason to change its recommendations or valuation and has held firm with its sell rating.
Though, Goldman does admit that there is upside risk to its target price.
It explained: "Key upside risks to our TP and rating include: stronger investor demand for GMG-managed products than we allow for (impacting overall AUM growth rates); a more benign valuation decline than we assumed for Logistics assets globally; and stronger tenant demand for GMG's development book than we allow for (impacting development margins, the rate of AUM growth, and overall NOI growth rates)."
Is anyone bullish?
Goldman Sachs may be bearish on the Goodman share price, but not everybody is.
Earlier this month, analysts at Citi put a buy rating and $22.10 price target on the company's shares.
Based on the current Goodman share price, this implies potential upside of 14% over the next 12 months.
