Ashmore’s fortunes could be about to turn

On the face of it, emerging markets specialist Ashmore’s results look pretty dismal, which is hardly surprising given disappointing growth in China and investor’s fears of higher interest rates. The group’s assets under management fell by 8.1 per cent in the final six months of last year, driven by $3.2bn (£2.36bn) of net client outflows and $3.9bn of negative investment performance.  

The good news is that the group’s profit falls were not as sharp as analysts, nor the market, had feared. Profit before tax for the half was £116mn – 23 per cent lower than in the previous period – but 30 per cent ahead of consensus estimates of £88mn. This was largely down to unexpected gains in its private equity assets. 

Adjusted earnings were closer to expectations, with Ebitda of £92mn slightly ahead of consensus estimates of £89mn. Encouragingly costs were tightly controlled with distribution costs down by over a third and operating costs down 4.3 per cent.

Given Ashmore’s share price is down 41 per cent over 12 months to 10 February, even according to the most conservative analyst earnings estimates they now look pretty attractive. Analysts at Numis have set 2023 earnings (before interest and taxes) forecast 13 per cent lower than consensus estimates, fearing more disappointment in emerging markets performance and further outflows for the group in the medium term. But even then, they think the shares are “too cheap” with price to earnings ex-surplus capital on their lowest forecast year of around 10 times. 

Importantly the group has a strong cash position. Based on operating profit of £117.9mn for the period, the group generated net cash of £69.8mn – slightly more than in the previous year. The company has a total of £444.5mn net cash in total, which bodes well for the future of its chunky dividend.   

While a “cheap” share can get cheaper, and further rattles in the Chinese debt markets, unsatisfactory election results or a failure to control global inflation could pose serious headwinds for Ashmore, the long-term structural growth story in emerging markets remains. The group’s chief executive Mark Coombs points to some encouraging trends: China's counter-cyclical policy tightening in 2021 provides scope for targeted fiscal and monetary easing, and more broadly across Asia, industrial production is accelerating and leading to higher levels of capital investment in the region. 

Broker price targets on the stock range from 320p (Numis) to 420p (Peel Hunt). These are all comfortably ahead of the current share price. While the short term outlook in emerging markets is fragile, patient investors could be nicely rewarded. Buy. 

Last IC view: Buy, 295p, 13 Jan 2022