Ashmore Group PLC – Maintained final dividend despite market turbulence.

Ashmore Group PLC (LON: ASHM) is a FTSE 250 Index listed Investment Manager, which provides investment opportunities to participate in Emerging Markets. It offers a wide range of different debt, equity, and regional strategies.

Investment Rationale – Buy at GBX 366.40

• From a technical standpoint, 200-Day SMA (365.50) and 90-Day (45.15), supporting the upside potential.
• Over the past four years, (FY16 to FY20), Operating Profit has surged at a CAGR of ~12.35%.
• As per the valuation metrics, Price/Book, Price/Earnings, and Price/Cash Flow multiples of the Ashmore Group PLC are currently lower as compared to the corresponding multiples of the Investment Banking & Investment Services industry.
• Since 2007, it has returned around 68% of attributable profits to shareholders through ordinary dividends.

Risk Assessments

• Brexit could impact the general confidence in the economy and equity markets of the UK. Moreover, the ongoing uncertainties arising from Covid-19 pandemic and widen macro-economic factors could impact the M&A activity, investment rates, quality of new investments, earnings growth and exit plans.
• Moreover, the dampened investor sentiment amid market volatility can reduce investor appetite for their assets.
• Also, the AUM (assets under management) can further underperform with unfavourable exchange rate movements. 

Financial Highlights - for the year ending 30 June 2020 (as on 11 September 2020)

 (Source: Company Website)

• The Company delivered strong operating and financial performance with 5% year-on-year growth in revenue, supported by 7% growth in net management fees.
• The balance sheet strength was maintained with financial resources of over £700 million.
• It recommended a final dividend per share of 12.10 pence, reflecting 2% year-on-year hike in total dividends to 12.10 pence.
• Due to negative market performance, Asset under management declined by 9% to US$83.6 billion.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

ASHM’s resilient business model is underpinned by a single global operating platform, cost flexibility, and balance sheet strength. Moreover, stabilisation of client flows and delivery of outperformance was seen towards the end of FY20. However, Covid-19 pandemic will keep impacting the asset pricing in the short-term.

Adjacently, the Emerging Markets continues to provide clear opportunity to enhance returns as assets are trading at significantly more attractive levels than the equivalent developed world bond and equity markets. Moreover, interest rates will remain low for a prolonged period due to debt-funded fiscal stimulus and unconventional monetary policies, which will continue to favour Emerging Markets’ high real yields. Stock 52 week High and Low were GBX 581.50 and GBX 281.80, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on Ashmore Group PLC at the current market price of GBX 366.40 (as on 9 October 2020, before the market close at 8.00 AM GMT+1) with lower double-digit upside potential based 3.60x Price/NTM Book Value (approx.) on FY21E Book Value Per Share (approx.).

Investec PLC – Capital and liquidity ratios remained robust.

Investec PLC (LON: INVP) is a FTSE 250 listed specialist bank and asset manager. It serves a selective client base with various financial services and products.

On 19 November 2020, the Company expects to release H1 FY21 results.

Investment Rationale – Buy at GBX 156.15

• The key trading multiples (Price/Earnings, Price/Cash Flow, Price/Book, and EV/Sales) multiples are currently undervalued compared to corresponding multiples of the Financials industry.
• From a technical standpoint, 20-Day SMA (141.98), supporting the upside potential.
• Over the past two years, (FY16 to H1 FY20), Net Profit has surged at a CAGR of 50.82%.

Risk Assessments

• The outlook remains uncertain and fluid due to Covid-19 pandemic.
• The delayed economic recovery can significantly impact client activity.
• Moreover, the interest income is impacted by lower interest rates.

Recent News

7 October 2020: Invested Limited repurchased 986,578 preference shares, representing 3.06% of the issued preference share capital, for the aggregate value of R61,646,406.11.

Pre-close Trading Update - for the six months ending 30 September 2020 (as on 18 September 2020)

• During H1 FY21, the operating environment was challenging due to reduced economic activity and increased market volatility caused by Covid-19 pandemic.
• Over the five months 31 August 2020, third-party funds under management (FUM) increased by 14.1% to £51.4 billion (31 March 2020: £45.0 billion).
• As of 31 August 2020, liquidity stood at £12.9 billion (representing nearly 40% of deposits).
• As of 30 September 2020, net asset value (NAV) and tangible NAV are expected to increase between 422-428 pence and 387-394 pence, respectively.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

In H1 FY21, INCP forecasts Adjusted EPS to stay between 10.5-8.3 pence, which is 64-71% behind the H1 FY20 level, due to demerger of assets. Moreover, the Group does not anticipate declaring an interim dividend. However, the business has proven resilience amid Covid-19 stringent lockdown and encouraged by the gradual reopening of economies. Inevitably, volatile financial markets and severe GDP contractions have negatively impacted revenues; however, capital and liquidity ratios remained robust and net asset value is expected to increase. Stock 52 week High and Low were GBX 367.09 and GBX 122.55, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on Investec PLC at the current market price of GBX 156.15 (as on 9 October 2020, before the market close at 3.14 PM GMT+1) with lower double-digit upside potential based 0.44x Price/NTM Book Value (approx.) on FY21E Book Value Per Share (approx.).

 

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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

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