Ashmore - a victim of fashion

Ashmore (ASHM.L): These are difficult days to be an emerging markets asset manager, especially if you are a specialist in debt fund products. So, a trading update from Ashmore is a nervy moment just now, but the fourth quarter update to 30^th June, released last week wasn’t too bad. Assets under management, at $58.9bn, were down but only by 3.6%. Of this $2.2bn drop, outflows of $3.0bn were partly offset by positive investment performance of $0.8bn. Management added colour to this, commenting that about half the outflows were in lower margin product areas, including Blended Debt. It is still reasonable to expect further group margin erosion over time though, as Ashmore grows and matures and competitive pressures squeeze their pricing power. Of the three biggest themes, Blended Debt fell by 9.8% to $15.7bn in this quarter, but Local Currency edged up 0.7% to $15.2bn whilst External Debt eased back 1.6% to $12.0bn. In general investment performance was good, with Blended Debt and Corporate Debt leading the way, whilst Local Currency lagged.

On the wider stage, investors’ attention is still trained on the wait for the US Fed to start raising interest rates. In the mean time carry trades and emerging market investing are being pushed down shopping lists. The problem is that every time we seem to be getting near to the big day, the Fed prevaricates. It might be concerns over the durability of the US recovery, or concerns over upheavals in financial markets if the Eurozone implodes in a Grecian crisis. Now you can add the weird goings on in China’s equity markets to the list of perils. So, Ashmore may be in structurally attractive asset classes, but will have to exhibit patience waiting for the finger of fashion to point their way once more.

Unsurprisingly the shares have been weak of late and at 286p are well down on the 350p sort of price that prevailed a year ago. Consensus forecasts are coming down, but at an already depressed 20p for FY2106, the PE is 14.3x. Helped by a strong balance sheet, a modest dividend rise to 16.8p is possible, producing a juicy yield of 5.9% to keep you warm. I would only add the caveat here, that the CEO Mark Coombs owns some 40% of the equity and last week’s Budget changes to dividend-related personal taxation may just change his preferred route of extracting remuneration from Ashmore. So, who knows when Ashmore’s markets will come back into favour, but at current valuations and with a good yield they are well worth a look. The shares tempted me at 317p back in April and that temptation is that bit stronger today. (Neil Cumming^, 13^th July 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower