Ashmore still facing currency headwinds

Shares in emerging markets asset manager Ashmore Group (ASHM) took a sharp knock at the start of this year as a result of currency fluctuations and negative investor appraisal on emerging markets. However, sentiment has improved since then, although the shares are still not back to where they were at the start of 2014.

Assets under management in the fourth quarter rose 7 per cent from the previous quarter to $75bn (£44bn), thanks to a $3.3bn positive investment performance, and, significantly, a $1.6bn net inflow of funds. The solid return on investments marks a triumph for the group's decision to take up investment opportunities at a time of market weakness, and returns have been particularly strong in blended debt, local currency, external debt and equities. Corporate debt was the standout performer, with funds rising 15.5 per cent from the third quarter to $8.2bn. At the other end of the scale, there were modest net outflows in external debt, while funds in Overlay/Liquidity, which manages currency exposure in any particular fund, fell by 10 per cent to $3.6bn. However, currency weakness continued to trim gains, with the dollar falling 3 per cent against sterling from the start of the year.

Berenberg says...

Hold. This has been a difficult year for Ashmore, given the volatility in emerging markets. However, the fourth quarter marks a reverse over the $9.7bn in net outflows over the previous six months. Encouragingly, inflows were broadly based by asset theme, customer type and domicile. Furthermore, we understand that margins were maintained in the fourth quarter, having dropped from 68 basis points in 2013 to 61 this year. However, we are reducing our earnings per share estimates by around 10 per cent largely on the back of currency headwinds, with a weaker dollar leading to translation losses on the large cash balance held in dollars and dollar-denominated revenues.

Liberum says...

Sell. The long-term case for investing in emerging markets is strong. However, it is going to take a while yet before we see this translated into consistent fund inflows. Furthermore, although they will return, the scale of past performance fees is unlikely to be repeated. From 2006 to 2011 these represented 39 per cent of revenues; our 2014 forecast is just 1 per cent, rising to 8 per cent in 2015. The yield is certainly supportive (and well covered), but the share price remains vulnerable to near-term risks and we have a price target of 303p, with adjusted forecast EPS for this year of 20.6p.