Ashmore – Founder selling down stake rattles the shares #ASHM
I covered Ashmore last month with the share price at 372p. It subsequently climbed as high as 420p before today’s update knocked investor confidence back again (latest share price 385p, market cap £2,750 million).
As a reminder, Ashmore is the fund manager which specialises in emerging market debt. Like most successful fund managers, it has a track record of strong and consistent profit margins over many years.
Today’s half-year report tells us:
- Assets under management up 10% to $76.7 billion (we knew this from the prior trading update).
- Average AuM up 17%.
- Net management fees up 15% at constant exchange rates.
- Performance fees much lower due to weaker markets.
- Net revenue up 8% excluding FX translation
On the negative side:
- Profit before tax down 6%, due to mark-to-market losses on seed capital investments.
- Only 30% of AuM outperforming over one year. The company defends this by saying that half of the underperforming assets are within 50bps of benchmark, and that it is “typical” to have a period of underperformance when markets are volatile.
The company is always bullish on emerging market investment prospects, but I usually find its arguments compelling! For example, these numbers suggest that emerging market debt denominated in strong currency (“external debt”) offers good relative value at present:
At the period end, the external debt index had a spread of 415bps over the 10-year US Treasury yield, a level that has been surpassed only twice since the global financial crisis: during the Eurozone debt crisis in 2011 and at the trough of the oil price decline in 2015-16. The index offers a yield of nearly 7%, the highest since the global financial crisis a decade ago.
In summary, “the outlook for EM in 2019 is positive, with healthy spreads available in external and corporate debt, and the potential for currency appreciation versus a weaker US dollar to enhance returns from local currency bonds and equities.”
Bombshell News: Founder-CEO selling down
This statement by CEO Mark Coombs has knocked the share price.
He says “the level of my equity ownership, currently c.39%, could restrict Ashmore’s future success” and “it would be prudent to prevent the size of my shareholding becoming a more significant issue over time.”
His plan is to sell up to 4% of Ashmore’s shares every year, over the medium term, while maintaining a significant stake.
It might seem strange to claim that his support as a cornerstone investor would restrict the company’s success. But there is background to this. Last year, Ashmore’s shareholders were warned by proxy advisers not to vote through a buyback proposal, on the grounds that it could allow Mr Coombs to gain control of the company without paying a premium.
The disposal by Mr Coombs will enable the company to defeat this issue since there will no longer be any threat, no matter how remote, of him gaining a controlling stake. Proxy advisors will no longer object to buybacks and the controversy around this issue will therefore go away.
Mr Coombs suggests that this controversy presented “a growing risk of damage to existing and prospective client relationships.”
He also says he is fully committed in his current role – he was born in 1960, and so it’s conceivable that he might remain committed to running the company for many years to come.
I don’t find today’s news too worrying, aside from the technical problem of needing to find buyers for this supply of shares (although Ashmore’s brokers UBS, Goldman Sachs and Morgan Stanley are likely to be very good at that).
It seems to me that the company remains in rude health, and with an excellent CEO who remains deeply committed. While it’s impossible to know for sure what anyone’s motives for selling their stake in a company might be, I am inclined to think that there is some truth to the given explanation. It might also be the case that he wishes to diversify his personal net worth.
Whatever the reason, I would be keen to buy Ashmore shares if the price was right. Pricing might be about to get more attractive than expected in the months and years ahead. It remains on the watchlist.