Ashmore (ASHM) – Gathering assets and growing profits

Ashmore (ASHM) – Gathering assets and growing profits

Getting tired of all this political malarkey? The uncertainties betwen the UK and EU at the moment are a useful reminder that political risk is always with us – and that this risk, too, can be diversified.

One of the best companies which helps investors to diversify this risk is Ashmore Group (ASHM), which manages almost $77 billion in emerging market assets according to today’s update (latest share price 372p, market cap £2,650 million).

The development of Ashmore’s assets under management (AuM) over time is presented like this in the most recent investor presentation.

Source: Ashmore Investor Presentation, 5 December 2018

While it’s hardly a smooth line, the general progress of the company can be understood.

The major categories are:

  • external debt (sovereign debt that’s denominated in a strong currency, dark blue)
  • local currency (locally-denominated sovereign debt, turquoise)
  • blended debt (a mix of sovereign and corporate debt, dark green)
  • equities (this generates higher fees for Ashmore than debt management, red)

Reason for Optimism

As emerging markets continue to grow at a faster pace than developed markets, so too do their financial systems and investible assets. This creates an opportunity for a specialist like Ashmore to ride a wave of growth.

Ashmore’s scale and track record, achieved over many years, makes it relatively easy for it to continue gathering assets and pumping out high returns for shareholders. One of the big secrets about the financial industry is that fund management is an incredibly profitable activity, allowing fund managers to be generous to their shareholders. Ashmore is no exception. It earned an operating margin last year of some 62.5%, and has been profitable for every year whose record is visible to me (stretching back to 2005).

Net inflows last year (FY 2018) were an enormous $17 billion, helping to bring AuM up to c. $74 billion.

And the positive trend in net inflows has continued so far in FY 2019, with an extra $2 billion in Q1 and $0.5 billion in Q2.

Of course, overall growth in AuM is determined not just by inflows, but also by investment performance and acquisitions. These other factors have provided a small helping hand so far in FY 2019, too.

Most of Ashmore’s funds are institutional in nature but it is working to improve the retail channel – this should be a positive trend in the years ahead, potentially reducing the lumpiness of client funds (though retail investors are perhaps even more likely than institutions to allocate their funds in a pro-cyclical fashion, i.e. withdrawing at the bottom!).

Valuation

The P/E ratio attached to Ashmore is 15x, according to latest estimates.

It’s unlikely to shoot the lights out, but it has a great track record as a steady performer. It has never cut its dividend, and looks set to have another good year in 2019.

In summary: I think the potential rewards from Ashmore look better-than-average, for lower-than-average risk. I haven’t added it to my portfolio yet, but I’m keeping a watchful eye on it and also on others in the conventional fund management sector: Jupiter (JUP) (P/E ratio 10x) and Schroders (SDR) (P/E ratio 12x).

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