Canaccord starts Ashmore at 'buy', highlights improving revenue quality

Canaccord Genuity initiated coverage of Ashmore at 'buy' with a 410p price target.

The brokerage said its target price reflects the strong forecast growth in profits underpinned by short and long-term headwinds, an improving quality of revenue and a significantly higher pre-tax profit margin than peers.

Canaccord said Ashmore benefits from a number of tailwinds, namely the fact that both institutional and retail investors are structurally underweight emerging markets in terms of asset allocation.

In addition, the investment manager has scale and a long track-record in Emerging Markets, with good investment performance that could act as positive factors in being able to resist a degree of pricing pressure from its clients.

"While calling a turn in the cycle has been difficult of late given the global macro and political conjuncture, we believe investment performance and fund flows are finally starting to pick-up in earnest. If so, we believe Ashmore could be well placed to deliver an attractive total return over the medium-term and there could be upside risks to our forecasts.

"While Ashmore benefits from a number of tailwinds, over the medium-to-long term the most important in our view is that both institutional and retail investors are structurally underweight emerging markets in terms of asset allocation. In our view, these factors warrant a higher price-to-earnings rating on a more forward-looking basis."

At 1515 GMT, the shares were down 0.2% to 374.41p.