Turbulent times for currency, finance and investment should help companies offering their expertise in those fields, one might think. On that note, here’s a couple I’ve been watching, one with results out today:
Cash from cash
Currency hedging specialist Record (LSE: REC) saw its shares spiking upwards in anticipation of today’s first-half results, though they have fallen back on the day by 6.3% at the time of writing to 31.5p.
Assets under management equivalents rose to $55bn, from $52.9bn at 31 march, with the firm growing its client base from 58 to 61. The result was a 7% rise in revenue to £11.1m, although underlying pre-tax profit declined by 2% to £3.6m with earnings per share down 2.2% to 1.33p.
Record might be in a pretty small niche market, but that kind of exclusivity brings in big profits — the company enjoyed an underlying operating margin of 33%.
With shareholders’ equity increasing from £33.3m a year previously to £35m this time, Record maintained its interim dividend at 0.825p per share, which is on track for the 5.7% full-year yield currently forecast by the City’s analysts. And that might not be all the cash that shareholders receive, as Record has said it will consider returning excess cash in the form of special dividends.
Pointing to the opportunities raised by currency volatility, the low interest rate environment and an attractive investment performance, chief executive James Wood-Collins said “I believe further progress will be made in the second half of the financial year“.
Forecasts put the shares on forward P/E multiples for this year and next of 12.2 and 11.3 respectively. To me that looks like an attractive valuation for a company generating cash in excess of its capital requirements and ordinary dividends, and with a real possibility of handing over spare cash as a nice bonus for shareholders.
It’s a small business in a small market, but I see Record as an investment risk worth taking.
Emerging market profits?
The somewhat bigger and less specialist Ashmore Group (LSE: ASHM) is one I’ve been watching for a while, intrigued by its investment focus on emerging markets — that’s risky, but it can be profitable.
This week’s first-quarter update showed a modest 4% rise in assets under management, entirely from investment performance as net flows were flat. Chief executive Mark Coombs suggested that emerging market returns are looking attractive and that’s “causing investors to reconsider their underweight positions“.
That would put Ashmore in a good position, and turmoil in Europe and the US while emerging market assets are apparently stabilising can only help — and it suggests Ashmore shares might be good to buy now for the next few years.
I did think the shares were a bit too expensive, recently commanding forward P/E ratios in the twenties, and the sell consensus put out by the City looked hard to dispute.
But since 6 October, the Ashmore price has shed 20%, and that’s giving us a multiple of around 16.5 which is looking more reasonable. The mooted dividend yield of 5.7% looks attractive, though with EPS dropping it’s starting to look a little stretched with likely cover of only 1.08 times — so there’s risk there, too.
But the valuation tide could well be turning for Ashmore, and while I wouldn’t buy just yet, I think it’s one to watch.