Ashmore Group - needing a market inflection

Ashmore (ASHM.L): The amber lights are just starting to flash for dividend lovers invested in Ashmore. In these final results, to 30^th June 2015, the final dividend was tweaked up, by 0.1p to 12.1p. After a 0.1p rise in the interim, this means that the total dividend is up 1.2% at 16.65p. However, it is now thinly covered, with diluted eps only up 4% (at 19.3p) thanks to 1.4p of FX translation gains. At constant currency, eps of 17.9p would be down 3.8% on last year’s 18.6p. Further up the P&L, EBITDA was down 9.4% at £176.7m, with margins holding at 67%, but period end AUM tumbled from $75bn to $58.9bn. So, trying to be positive, at least the redemptions had a beneficial effect on the overall margin mix. Pre-tax profits rose 6% to £181.3m thanks to performance fees, FX and operating cost control. The nearing of a US interest rate rise and turmoil in Chinese capital markets has made this the most challenging of times for the group.  Of the $16.1bn drop in AUM, the biggest factors were $9.5bn of net outflows and $6.0bn from negative performance. A total of $9bn came out of the three largest themes, being $4.9bn from Blended Debt, $2.1bn from Local Currency and $2bn from External Debt.

In raising the dividend the Board cites “the increase in profits” and the “strong and liquid balance sheet”. The dividend policy remains “to pay a progressive ordinary dividend over time” but including plenty of caveats “such as prospects for the Group’s earnings, demands on the Group’s financial resources, and the markets in which the Group operates.” 

Looking ahead the timeline for US interest rate increases remains changeable and the outlook for China and other emerging markets is foggy. It is difficult to see how AUM net outflows can be turned positive just yet and the board also notes that of the £13.3m of performance fees (up from £3.1m in FY2014), was almost all generated by funds ahead of August 2014 year-ends, but that August 2015 saw “no material performance fees” generated by those same funds. It feels to me like consensus eps for FY2016 of 18.2p look vulnerable. The shares have bounced today, to 260p, and on those consensus numbers the flaky PE is 14.3x. A further titchy dividend increase to 16.85p would point to a yield of 6.5%. At this stage, a strong balance sheet means that the FY2016 dividend is affordable, but unless trading improves is such a high yield sensible or necessary? The eventual fate of the dividend may/must also be influenced by the needs and wishes of CEO and c40% shareholder, Mark Coombs. Last time I wrote on the stock, in July, the shares tempted me at 286p. That temptation remains, but my conviction levels are lower. (Neil Cumming^, 8^th September 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