Ashmore results disappoint despite earnings beat, optimistic outlook

Asset manager Ashmore Group reported stronger than expected full-year earnings and insisted the recovery in emerging markets was sustainable, with "substantial value" remaining in absolute terms and relative to developed world assets.

As assets under management of $58.7bn and net inflows of $1.9bn for the year to 30 June had already been announced, Asmore unveiled net revenue up 22% to £257.6m versus the consensus forecast of £268m, with net management fees up 13% to £222m, performance fees more than doubled to £28m and other revenue and forex at £8m.

Aggregate net management fee margins fell from 55bps to 52bps but was more than offset by good AuM growth and the benefit of a stronger US dollar against sterling.

Profit before tax of £206.2m was a 57% leap and above the £200m consensus as the actively-managed seed capital programme contributed higher than expected profits of £41m, leading to diluted earnings per share jumping 31% to 23.7p.

Directors proposed a final dividend per share of 12.1p to give total dividends per share of 16.65p for the year, flat on the year before, which was mostly as expected but disappointed some analysts .

The emerging markets specialist said recent weakness in EM asset prices was primarily the result of investor behaviour and capital flows moving to developed markets that were being supported by quantitative easing rather than deterioration in the underlying fundamentals.

"This implies that substantial value has been created for Emerging Markets investors, a situation that began to be recognised over the past year."

Ashmore said EM valuations "remain attractive relative to comparable investments in developed markets, but they are also attractive in their own right", based on four principal drivers: continuing recovery in GDPs as economic conditions "should continue to improve as capital flows return to Emerging Markets"; deep structural reforms in many EM economies including Argentina, Brazil, Colombia, India, Indonesia, Mexico and Russia; typical underweight allocations to EM for foreign investors, typically at less than 10% versus the 20% weight in the more representative global indices; it expects foreign investor capital flows back into EMs to ease financial conditions, which in turn will stimulate economic growth.

"The performance of emerging markets assets over the past year has been strong. However, given the significant price moves and macroeconomic adjustments undertaken over the past cycle, there remains substantial value available across the emerging markets asset classes, in absolute terms but also relative to developed world assets.

"Ashmore's strategy to capitalise on emerging markets growth, its proven investment processes, and its efficient business model, mean it is in a strong position to continue to deliver superior investment performance for clients, to raise investor allocations to Emerging Markets, and to generate further value for shareholders," it said.

Chief executive Mark Coombs said: "There remains substantial absolute and relative value available across the diversified emerging markets, and Ashmore's focused strategy means it is in a strong position to continue to deliver superior investment performance and to benefit as investors raise their allocations to emerging markets from underweight levels."

Ashmore shares fell 5.2% to 343.5p in the first hours of trading on Thursday.

Broker Numis said the earnings beat was mainly reflecting the higher than expected seed capital/similar return, so "if anything the lower than anticipated net management fee margin is slightly disappointing".

While management re-iterate their positive outlook for flows returning to EM, analysts noted that their and consensus expectations were already factoring in reasonable flow recovery, with a $5bn increase for the consensus, while "it remains to be seen at what revenue margin these flows might achieve".

Citi, which said the fall in the management fees margin was the main miss and the implied second half run rate is "likely to lead to 3-4% consensus downgrades", expects Ashmore will see "further recovery in net fund flows" in the new financial year — "the debate is on the scale and margin of these".