Ashmore Group PLC

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.

On 16 April 2021, Ashmore expects to release its AuM statement.

Investment Rationale – Buy at GBX 423.60

• Ashmore has a high cash generative business model which substantially converts operating profit to cash (110% cumulative conversion since IPO).
• The balance sheet reflects high-quality financial resources with no debt, which ensures a progressive dividend policy. Since 2007, around £1.2 billion has been paid in the form of a dividend, which is equivalent to around 68% of attributable profits to shareholders through ordinary dividends (cumulative).
• Over the past four years (FY16 to FY20), revenue surged at a CAGR of ~12.57%.
• From the technical standpoint, 14-day RSI (33.04) is supporting the upside potential.
• Over the past six months, 97% of AuM outperforming benchmarks.
• The Group maintaining profitability at high level with a continued focus on controlling operating costs.

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.

Half-Yearly Report for the six months ending 31 December 2020 (as on 10 February 2021)

 (Source: Company Website)

• During H1 FY21, Assets under management (AuM) surged 11% year-on-year to US$93.0 billion, on the back of strong investment performance and improved net outflows.
• The significant outperformance witnessed across equities and fixed income.
• The robust investment performance led a 14% increase in profit before tax, while the diluted EPS increased by 15% year-on-year.
• US dollar weakness supporting a positive Emerging Markets outlook. 

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Ashmore’s half-yearly performance reflected recovery, strong investment performance and high profitability. ASHM’s resilient business model is underpinned by a single global operating platform, cost flexibility, and balance sheet strength. The lockdown easing combined with fiscal and monetary stimulus has improved the trading from the levels experienced in March 2020. Although the global macroeconomic outlook is still uncertain; however, Emerging Markets are relatively less likely to suffer than the developed economies. Stock 52 week High and Low were GBX 493.40 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 423.60 (as on 2 March 2021, before the market close at 10.20 AM GMT) with lower double-digit upside potential based on 4.10x Price/NTM Book Value (approx.) on FY21E Book Value Per Share (approx.).

Quilter PLC

Quilter PLC (LON: QLT) is a FTSE 250 index listed Financial Service Company, which is engaged in wealth management, advisory and investments in the UK and Internationally.

On 10 March 2021, the Company expects to provide full-year results for FY20.

Investment Rationale – Buy at GBX 144.25

• QLT is holding over £100 billion of customer assets and has a leading position in various wealth management capabilities. During Q4 FY20, its capital return remained on track with tight cost control.
• Nearly 80% of client asset migration was completed by November 2020, while the complete migration was expected to be completed by February 2021.
• Since H1 FY17, debt/equity has remained below 0.16x, which is lesser than the industry median.
• From a technical standpoint, 14-day RSI (33.56) is supporting the upside potential.

Risk Assessments

• The Covid-19 pandemic has been putting pressure over gross inflows. Moreover, the challenging external environment could impact the funds under management and the ability to attract new advisers.
• Furthermore, the volatility in the financial markets can negatively impact solvency, capital, and liquidity position of the Company.
• There are also certain risks and uncertainties associated with administrative complexity, increased competitive pressure, complying with changing regulations, external threat to security systems, among others.

Recent News

26 February 2021: QLT purchased 281,969 own shares for the cancellation purpose. Following the transaction, the Company had 1,771,583,373 ordinary shares in issue.

Fourth Quarter 2020 Trading Statement for three months ended 31 December 2020 (as on 26 January 2021)

 (Source: Company Website)

• During Q4 FY20, gross sales were £2.8 billion (Q4 FY19: £3.5 billion), while the net inflows were £0.4 billion (Q4 FY19: £0.5 billion).
• As of 31 December 2020, Assets under Management and Administration (AuMA) was £117.8 billion, reflecting a 7% increase from the position on 31 December 2019.
• The final migration of assets regarding the new UK platform was expected to be completed by the end of February 2021.
• QLT also acquired 118.3 million shares for cancellation as on 31 December 2020, at the cost of £153.0 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

QLT finished FY20 with improved year-on-year net inflows, while AuMA registered 7% growth year-on-year, despite market volatility. The investment platform transformation projected remained on track. The Company has stable net flows and a solid investment platform to drive growth. Moreover, the tactical cost savings and structural optimisation plans progressed well to provide expected benefits in FY21. Stock 52 week High and Low were GBX 161.70 and GBX 97.60, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on Quilter PLC at the current market price of GBX 144.25 (as on 2 March 2021, before the market close at 8:00 AM GMT) with a lower double-digit upside potential based on 1.58x Price/NTM Book Value (approx.) on FY20E 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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