Ashmore boosts assets

Assets under management (AUM) at emerging markets asset manager Ashmore (ASHM) grew by 6.8 per cent to $68bn (£42.4bn) in the three months to the end of September, in marked contrast to the 3 per cent fall in AUM in the financial year to end-June. Moreover, last year's $3.4bn negative investment return was turned into a $3.7bn gain, while net inflows of $600m in the latest three-month period compared favourably with inflows of $1.3bn for the whole of the previous year.

Crucially, equity investments delivered a much stronger performance. Last year equity AUM slid from $10.1bn to $6.2bn through a combination of net outflows and negative returns. And while net outflows continued in the first quarter, the investment performance was strong enough to lift AUM to $6.4bn. It is too early to get a picture of the strength of performance fees but, given the positive investment return, the group is on its way to reversing the 70 per cent drop suffered last year when performance fees fell from £85.4m to just £25.4m. Encouragingly, with the exception of multi-strategy assets and corporate debt, all investment classes recorded an increase in assets in the first quarter. And with AUM edging ahead, Ashmore can expect an improvement in net management fee income.

Numis says…

Hold. We believe that emerging markets remain a long-term asset management growth theme, but Ashmore has the more immediate challenge of declining fee yields and eroding margins. So future earnings growth may not correlate with growth in AUM. Indeed, we calculate that a doubling in AUM over the next five years (15 per cent growth per year) could translate into earnings per share growth of only 4 per cent per year. And even a tripling of assets (25 per cent growth per year) would only produce annual earnings growth of 13 per cent. We are leaving our pre-tax profit estimates unchanged at £215m for 2013, giving EPS of 22.7p for the 12 months to end-June 2013 (from £243m and 25.8p for 2012).

Peel Hunt says...

Buy. Ashmore has made a positive start to the new financial year, thanks to a solid investment performance. At this point in the year, we do not expect to make any material changes to our current estimates of adjusted pre-tax profits of £235m and EPS of 23.7p, and maintain a target price of 390p. And while Ashmore is trading on a premium rating to peers, we believe that the long-term investment case remains positive, as investors continue to appreciate the relative strength of emerging markets in relation to more mature mainstream investment markets.