Ashmore Group Plc

Ashmore Group Plc (LON: ASHM) is an FTSE 250 Index listed specialist investment manager for the Emerging Markets with over 25 years of experience.

On 14 July 2021, the Company will release its Q4 FY21 AuM statement.

Rationale for Valuation – Buy at GBX 418.40

• The Company has decent fundamental metrics as it has maintained a Net Margin and ROE above 40% and 8%, respectively, in the last two years.
• On the leverage front, the Assets/Equity and the Debt/Equity have remained below the industry median of 2.88x and 0.14x, respectively.
• In the last year, the Company delivered a return of ~23% and delivered higher returns compared to the benchmark Index (FTSE 250 Index).
• From a technical standpoint, 20-day SMA (GBX 402.00) supports an upside potential.

Key Risks

• Certain potential risks can impact the business, such as foreign currency risk, dampened investor sentiments amid market volatility and unplanned increase in the cost base.
• The Company may suffer a loss of business and growth opportunities due to the macroeconomic and political disruptions.
• Meanwhile, the change in regulations due to the Brexit may impact the growth trajectory of the Company.

Q3 FY21 Trading Update (for the quarter ended 31 March 2021, as on 16 April 2021)

(Source: Company Website)

• During the period, the assets under management decreased by USD 3.1 billion QoQ, with net inflows of USD 1.5 billion and negative investment performance of USD 4.6 billion.
• With the strong recovery in Emerging Markets, the Company saw an improving trend in this quarter.
• Moreover, the relative performance for Q3 FY21 continued to be strong in equities, while it was also in line with or slightly below benchmarks in fixed income strategies.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings (NTM) (Illustrative)

Conclusion

ASHM had anticipated decent growth in the emerging markets during 2021. Furthermore, the central bank policies are expected to remain supportive, which provides a robust backdrop for continued superior economic growth and solid performance in Emerging Mark. Nonetheless, the accelerated progress of Covid-19 vaccinations across emerging markets shall boost up the economic activities further. Moreover, the supportive fiscal and monetary policies by developed countries may improve the global macro-outlook. The fixed income markets fell globally, while equity markets increase over the quarter, reflecting successful vaccination programmes in many countries and a repricing of inflation expectations. Overall, the Company would focus on allocating its investments in those parts of the world, which offer higher returns and yield. The stock made a 52-week low and high of GBX 316.60 and GBX 493.40, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on Ashmore Group Plc at the current price of GBX 418.40 (as on 16 April 2021 at 9:15 AM GMT) with a lower double-digit upside potential based on 18.10x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

AO World Plc

AO World PLC (LON: AO) is an electrical retailer, which sells small and major domestic appliances and consumer electronics. The Company’s operations are differentiated in two segments, namely the United Kingdom and Europe.

Rationale for Valuation – Buy at GBX 315.20

• The Company has given a strong performance across all aspects of the business, supported by a significant revenue increase, improved financial resources and strong cash generation.
• The Company has decent fundamental metrics as it has maintained a ROE above 15% in H1 FY21.
• As per valuation metrics, the EV/Sales multiple is currently higher than the corresponding multiple of the Software & IT Services industry.
• In the last year, the Company delivered a return of ~417.05% and delivered higher returns compared to the benchmark Index (FTSE 250 Index).
• From a technical standpoint, 200-day SMA (GBX 287.69) supports an upside potential.

Key Risks

• The Covid-19 pandemic can pose a significant risk to the supply chain.
• Also, the increased cost of recycling and logistics operations can impact the profitability of the business.
• Moreover, there is a risk of potential changes in customer behaviour with Covid-19 impact on the wider economy.
• Brexit uncertainties creating disorder for the supply chain, currency exposure, people, and consumer demand for UK electrical market.

Full Year Trading Update Ended 31 March 2021 (as on 15 April 2021)

• The Company delivered a robust performance across all aspects of the business, supported by the good momentum continuing in the fourth quarter.
• Group revenues surged by 62% YoY to £1.66 billion during the period, with an increase in AO.com revenue of 88% YoY in Q4 FY21 and AO.de revenue of 77% in the full year.
• During the financial year 2021, the Company added more than 2 million new customers.
• The Company generated cash of £60 million over the year, with £66.5 million of cash at the year-end (2020: £6.9 million).
• At the year-end, the net cash was £57 million (excluding right of use lease liabilities), with RCF (revolving credit facility) of £80 million. Therefore, the total liquidity headroom stood at £142.6 million at the period end.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales (NTM) (Illustrative)

Conclusion

Despite Covid-related costs, the Company expects 2021 adjusted EBITDA to be in the range of £63-£72 million, while it was also in line with market consensus. In FY21, the German business is expected to generate profits. Overall, it expects a double-digit growth business in the year ahead. The Company has increased its customer base. Moreover, the customer satisfaction rating has shown good (measured by Net Promoter Score). The One AO strategy had significantly improved the operating capacity and strengthened the Company's positioning.

Meanwhile, the full-year trading update has shown outstanding financial and operational progress. AO has certainly been benefitted as UK electrical market moved online during the pandemic. The stock made a 52-week low and high of GBX 56.60 and GBX 444.50, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on AO World Plc at the current price of GBX 315.20 (as on 16 April 2021 at 9:20 AM GMT) with a lower double-digit upside potential based on 1.14x EV/NTM Sales (approx.) on FY21E sales (approx.).

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

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

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