Specialist fund manager Ashmore Group (LSE: ASHM) made hay when China was posting double-digit growth year after year but was then hit by the slowdown in emerging markets. However, lately there have been signs that the sun is ready to shine again.
Gimme ‘more
Ashmore has just published its full-year results this morning, and markets evidently expected more, with the stock down nearly 6% in early trading. Yet the numbers look more positive to me than today’s negative response suggests.
The group reported a near 22% rise in net revenue to £257.6m, which looks impressive but unfortunately undershot the consensus forecast of just over £266m. Net management fees rose 13% to £221.6m and performance fees more than doubled to £28m, but again, there were disappointments elsewhere. Aggregate net management fee margins dipped from 55bps to 52bps, worrying many even though management claimed that strong growth in assets under management and a stronger US dollar against sterling more than offset the reduction.
Let it flow
Ashmore nonetheless posted a 23% rise in profit before tax to £206.2m with diluted earnings per share (EPS) leaping 31% to 23.7p (beating the forecast 22.21p). As previously announced, assets under management increased 12% to $58.7bn, with net inflows of US$1.9bn, although again, analysts had hoped for higher inflows. Ashmore’s fund managers are doing well enough, posting a positive market performance of $4.2bn, with 91% of assets under management outperforming their benchmarks over one year, 86% over three years and 87% over five years.
Ashmore missed expectations, but now those same expectations have been dampened, and with the share price well down on the day, I think the investment case should quickly emerge. Especially as it claims recent improvements in the emerging market cycle are set to continue, and the recovery has further to go.
Ash cash
Chief executive officer Mark Coombs hailed the group’s strong investment performance, double-digit growth in assets under management, and good operating and financial performance: “There remains substantial absolute and relative value available across the diversified Emerging Markets, and Ashmore’s focused strategy means it is in a strong position to continue to deliver superior investment performance and to benefit as investors raise their allocations to Emerging Markets from underweight levels.”
Ashmore has maintained a strong balance sheet with excess regulatory capital of £448.3m. Today it proposed a final dividend per share of 12.10p, lifting it to 16.65p for the year. Again, there was disappointment here: the payout was 16.65p in both 2015 and 2016, so the payout remains flat. Analysts had pencilled in 16.91p, another reason for their displeasure. Yet the forecast yield is still 4.6%, which I doubt few investors will complain about.
That’s rich
Ashmore has managed to deliver a positive set of results with plenty of negatives to ponder. You will always be punished if you fail to live up to expectations. Trading as a forecast 16.6 times earnings, the stock could be cheaper. But the emerging market cycle is in swing, investor money is flowing in, and today’s disappointments will soon be forgotten. The turnaround may take a little longer but I still think Ashmore Group could make you rich.