Ashmore Group PLC (LON: ASHM) – Emerging Markets Fundamentals Underpin Long-Term Growth.

Ashmore Group PLC is an FTSE 250 Index listed specialist investment manager for the Emerging Markets with over 25 years of experience. Moreover, ASHM had several investment themes, such as external debt, local currency, corporate debt, blended debt, alternatives, equities, liquidity, and multi-asset. ASHM had assets under management of USD 93 billion as of 31 December 2020, and investment performance was positive in all the equities, multi-asset, and fixed-income themes.

The Company has won two awards from Institutional Investors in the US and Europe as it was named Emerging Markets Local Debt Manager of the Year and Emerging Markets Fixed Income Manager of the Year. Overall, it employs around 310 employees in 11 countries.

On 16 April 2021, ASHM will release the Q3 FY21 AuM (Assets under management) statement.

(Source: Company presentation) 

Recent Trend of Dividend Payments

(Source: LSE, chart created by Kalkine Group)

The Company had a progressive dividend policy considering the prospects of ASHM’s earnings and demand for financial resources. ASHM will pay an interim dividend of 4.80 pence per share on 30 March 2021 with respect to H1 FY21. The ex-dividend date was 04 March 2021. Moreover, the Company had paid the same 4.80 pence per share of interim dividend during H1 FY20 as well.

Growth Prospects and Risk Assessment

Ashmore operates in a large, diverse, and liquid investment universe of Emerging Markets. It has an active, value-based investment philosophy that provides ample market opportunities to invest in emerging markets. It has quite a diversified client base in terms of investment themes and location that provides substantial resilience to the business. Moreover, the Company had anticipated an optimistic Emerging markets outlook well-supported by US dollar weakness, diversity, growth premium and relative valuations.

(Source: Company presentation)

Also, the Company had witnessed third-party AuM with approximately USD 9 billion of AuM in funds that have been seeded. However, the delivery of the Covid-19 vaccine in the emerging markets would be critical to determine the pace of economic recovery.

However, certain potential risks can impact the business, such as interest rate risk, foreign currency risk, dampened investor sentiments amid market volatility, unplanned increase in the cost base, cybercrime and technology risk, liquidity risk arising from the Group’s inability to pay short-term obligations. The Company may suffer a loss of business and growth opportunities due to the macroeconomic and political disruptions. Meanwhile, the change in regulations due to the Brexit may impact the growth trajectory of the Company.

Industry Outlook Dynamics

According to the latest report from the Markets and Markets, the market size of the Asset Management System industry is anticipated to grow at a CAGR of 10.3% from USD 16.8 billion in 2020 to USD 27.4 billion by 2025. Meanwhile, the reduced equipment downtime and efficient utilisation of resources would drive the industry.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Ashmore Group Plc.

A Glimpse of Business Segments (H1 FY21)

Financial and Operational Highlights (for the six months ending 31 December 2020 (H1 FY21), as on 10 February 2021)

(Source: Company Website)

• The Company delivered a strong investment performance during the period, with assets under management (AuM) increased by 11% YoY and improving net outflows of USD 1.4 billion.
• It has outperformed in the fixed income and equities market, with 39% AuM outperforming benchmarks over three years, 97% over the six months, 50% over one year, and 91% over five years.
• Led by strong investment performance, the Company has shown good profit growth, with profit before tax increased by 14% YoY and Diluted EPS surged by 15% YoY.
• However, the adjusted revenue was down by 12% YoY, with an average AuM 6% lower YoY.
• Gross subscriptions stood at USD 7.5 billion, which were lower against last year comparatives and represent 9% of opening AuM.
• Gross redemptions decreased to USD 8.9 billion year-on-year (or 11% of opening AuM).
• Over the period, there was good demand across the broad range of investment themes, but with particular strength in the local currency, corporate debt, blended debt and equities themes.
• On 30 December 2020, the Company has capital resources of £727.3 million, which was equivalent to 102 pence per share, giving an excess regulatory capital of £147.3 million.
• Ashmore has a high cash generative business model, which substantially converts operating profit to cash (110% cumulative conversion since IPO).
• The balance sheet reflects high-quality financial resources with no debt, which ensures a progressive dividend policy.
• The Board has maintained the interim dividend per share of 4.80 pence, in line with the last year's corresponding period (H1 FY20: 4.80 pence). This dividend will be paid on 30 March 2021 to all shareholders on the register on 5 March 2021. Since 2007, around £1.2 billion has been paid in the form of a dividend, which is equivalent to around 68% of attributable profits to shareholders through ordinary dividends (cumulative).
• ASHM’s resilient business model is underpinned by a single global operating platform, cost flexibility, and balance sheet strength.
• Although the global macroeconomic outlook is still uncertain; however, Emerging Markets are relatively less likely to suffer than the developed economies.
• Despite the COVID-19 crisis, valuations across equity markets and fixed income still offer significant upside and opportunities for further outperformance.
• Further, Ashmore is well-positioned to benefit from the Emerging market’s long-term growth trends.
• The flows and AuM are expected to increase in the near to medium term.

Financial Ratios (H1 FY2021)

Share Price Performance Analysis

 (Source: Refinitiv, Thomson Reuters)

On 29 March 2021, at 8:50 AM GMT, Ashmore Group PLC’s shares were trading at GBX 397.50, up by 0.08% against the previous day closing price. Stock 52-week High and Low were GBX 493.40 and GBX 288.40, respectively.

From a technical standpoint, 14-day RSI is forming a divergence and any price close above the downward sloping trend line can see a sharp uptick in prices.

In the last five years, Ashmore Group PLC’s stock price has delivered a return of ~77.16% return as compared to ~28.28% return of the FTSE 250 index and ~15.63% return of the FTSE All-Share Financials index, which shows that the stock has outperformed the benchmark index and the benchmark sector.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had delivered resilient financial performance during the first half of FY21 illustrating, the early stages of the recovery cycle. Moreover, ASHM had anticipated decent growth in the emerging markets during 2021. However, the ongoing fears regarding the third wave of the Covid-19 pandemic in Europe may cause several operational headwinds for the ASHM. Nonetheless, the accelerated progress of Covid-19 vaccinations across emerging markets shall boost up the economic activities further. Furthermore, the emerging nations had experienced a shallower recession as compared to developed markets during 2020 and anticipated an accelerated recovery for 2021. The IMF had forecasted a drop of 3.3% in the GDP of Emerging Markets during 2020, and an increase of 6.0% during 2021, while the recovery for the developed nations was anticipated to be around 3.9% for 2021.

The supportive fiscal and monetary policies by developed countries may improve global macro-outlook. However, these policies may also result in record levels of debt/GDP in those developed countries. Moreover, the total of fiscal deficit and current account deficit accounted for 18% of the U.S. GDP. The weakening of the U.S. dollar would strengthen emerging markets as a weaker US dollar would cause capital to flow from the U.S. economy in search of higher returns. Overall, the Company would focus on allocating its investments in those parts of the world, which offer higher returns and yield.

 

Considering the strong cash generation, outperformance through market recovery cycles, robust balance sheet, outlook continues to favour Emerging Markets, decent business growth rate trajectory, sound financial position, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Ashmore Group at the current market price of GBX 397.50 (as on 29 March 2021 at 8:50 AM GMT) with lower double-digit upside potential based on 15.86x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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