Ninety One faces structural challenges

A difficult set of results had long been telegraphed by Ninety One (N91), the Anglo-South African asset manager. A combination of falling asset prices and low investor confidence took its toll on assets under management, which were 10 per cent lower in these results at £129bn due to net outflows of £10.6bn – worse than most analysts had pencilled in. When combined with a lowered dividend payout, it is no surprise that the share price has gone sideways, with no concrete signs that the situation will change imminently.

The company’s management described the predicament in pithy terms: “The majority of strategies offered by Ninety One were not aligned with the immediate preference of asset holders for lower-risk or uncorrelated assets.” This is a nice way of saying that investors dashed for cash as soon as interest rate rises made that an attractive option. In addition, the manager experienced particular weakness in its home market in South Africa as that country goes through another of its regular bouts of economic stagnation and random power cuts.

However, there were signs of management action to control costs. For instance, the cost ratio fell by nearly 1 percentage point to 43.5 per cent, despite inflationary pressures on staff costs. Numis analysts reckon this implies that Ninety One has cracked down on variable pay rates. Nevertheless, the broker describes the company as, “a structurally challenged mid-sized player”. We agree with that view and even at a forward price/earnings ratio of 14, helped in part by a large private holding, means the shares have little immediate attraction. Sell.

Last IC view: Hold, 230p, 19 May 2022