Ashmore Group PLC

Ashmore Group PLC (ASHM) is a London-headquartered specialist investment management company, which is focused on the emerging markets and offers a wide range of different equity, debt and regional investment strategies. In structured products, segregated accounts and pooled funds, as at 30 June 2019, the group managed USD 91.8 billion worth of assets. The group has a team-based approach to investment management, and offers several investment themes including Alternatives, Equities, Corporate Debt, Local Currency, External Debt and Multi-Asset. The operations of the group are differentiated in three geographical segments, namely United Kingdom, United States and Other.

Financial Highlights (FY 2019, in £m)

(Source: Company Filings)

Driven by market performance of $6.9 billion and net inflows of $10.7 billion, assets under management increased by 24%, or $17.9 billion, to $91.8 billion. The group reported that compared with the previous year, gross redemptions of $13.1 billion remained stable in absolute terms, and redemptions remained at a normal level with no patterns. Due to higher foreign exchange translation revenues and 17% growth in net management fee income, net revenue rose by 14% to £314.3 million (FY2017/18: £276.3 million), while adjusted net revenue increased by 11% to £308.1 million. Statutory operating expenses rose by 13%, or £13.2 million, compared with the prior year, while total adjusted operating costs were £115.8 million (FY2017/18: £100.4 million). On an adjusted basis, EBITDA increased by 10% from £183.6 million to £201.8 million with an adjusted EBITDA margin of 66%, while including the effects of foreign exchange translation and seed capital-related items, EBITDA increased by 14% to £207.6 million (FY2017/18: £181.5 million). As a result of the strong growth in net revenues and limited cost inflation, statutory profit before tax was 15% higher than in the prior year to £219.9 million, while adjusted profit before tax excluding foreign exchange translations was £215.1 million. On a diluted basis, earnings per share rose by 18% to 25.0 pence and basic earnings per share was up by 18% to 26.6 pence, reflecting a lower effective tax rate compared with the prior year and strong growth in profit before tax. The company continued to hold no debt on its balance sheet and total equity attributable to shareholders of the parent at the end of the period was £843.2 million. The group recommended a final dividend of 12.10 pence per share for the year, in line with its intention to re-establish dividend cover of at least 1.5x statutory earnings.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary

Daily Chart as at 06-September-19, before the market closed (Source: Thomson Reuters)

On 06 September 2019, at the time of writing the report (at 9:55 am GMT, before the market closed), ASHM stock was trading at GBX 462.40, up by 1.71 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 545.50/GBX 337.80. The company’s stock beta was 1.54, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £3.22 billion, with a dividend yield of 3.66 per cent.

Conclusion
A stronger dollar and political challenges in many emerging economies poses a risk to return in the asset class, which can impact the financials of the group, as investors might not invest in the market fearing asset price volatility. Investors might decide to change their allocation decisions towards the safety of the developed country, as a threat of recession has increased in recent times, even as central banks shift their stance towards accommodative monetary policy. The group reported that investor risk aversion and worsening sentiment might continue as growth in China and Europe, as well as in the US, is starting to be affected by the prolonged trade war initiated by Donald Trump. Even though central banks in emerging markets have the capacity to provide monetary policy stimulus if required, and valuations across fixed income and equity asset classes looked attractive, the risk from the developed economies can spill over to their countries, which can lead to capital flight and exacerbate the financial problems in the country.
Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 462.40 (as on 6 September 2019), while we look for any upcoming catalysts in the near term.

*Peers of the company are Man Group PLC, Amundi SA, Jupiter Fund Management PLC, Standard Life Aberdeen PLC, Schroders PLC, Intermediate Capital Group PLC and Hargreaves Lansdown PLC
*All peers and forecasted figures have been taken from Thomson Reuters.
 

International Public Partnerships Limited

International Public Partnerships Limited (INPP) is a Guernsey-headquartered closed-ended investment fund which invests in high quality global public infrastructure projects and businesses in the UK, Europe, North America and Australia. The group seeks to provide sustainable returns through a combination of capital appreciation and dividends by investing in public or social infrastructure assets which are underpinned by proven regulatory frameworks and long-term contractual relationships. The operations of the group are differentiated in four geographical segments, namely UK, Europe (excluding UK), North America and Australia.

Financial Highlights (HY 2019, in £m)

(Source: Company Filings)

Including fair value movements, dividends and interest, total investment income in the period was £99.6 million (H1 2018: £79.5 million), while total income during the period was £100.36 million, against £80.17 million in the prior year. These returns were partially offset by a rise in operating expenses including finance costs. Due to impact of fair value movements and increased investment income as a result of the growing portfolio, profit before tax rose in contrast to the last year (H1 2018: £65.9 million) rose to £83.7 million. Profit for the period was up from £65.99 million in H1 2018 to £83.71 million in the current period. Earnings per share increased to 5.64 pence (H1 2018: 4.70 pence), and the group announced a dividend of 3.59 pence per share for the period. This was in line with the track record of the firm of delivering an average annual dividend increase of 2.5% and it reaffirmed its 2019 and 2020 dividend targets of 7.18 and 7.36 pence respectively. At the end of the period, net asset value rose by 1.5% since 31 December 2018 to £2.2 billion, with net asset per share of 150.3 pence.

Share Price Commentary

Daily Chart as at 06-September-19, before the market closed (Source: Thomson Reuters)

On 06 September 2019, at the time of writing the report (at 10:40 am GMT, before the market closed), INPP stock was trading at GBX 161.29 and remained flat against the previous day closing price. Stock's 52 weeks High and Low is GBX 165.60/GBX 146.00. The company’s stock beta was 0.44, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £2.38 billion, with a dividend yield of 4.34 per cent.

Conclusion
The performance of the group is linked to the economic growth of the country it operates in, and as the group primarily has operations in developed countries, any sustained downturn can reduce the number of opportunities available with the group. Moreover, the emerging policies by a major party in the UK to nationalise certain activities and uncertainties with regards to Brexit have complicated the political landscape in the country. Also, the group operates in many countries but reports its results in sterling, which has been under severe strain due to domestic political issues, reducing the effective earnings of the group.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 161.20 (as on 5 September 2019), while we look for any upcoming catalysts in the near term.

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