ii view: high yielder Ashmore keeps big dividend unchanged

Shares in this emerging markets fund manager are down by more than a quarter year-to-date and offer a dividend yield of over 8%. Buy, hold, or sell?

Full-year results to 30 June

• Assets under Management down 32% to $64 billion
• Net revenue down 10% to £262.5 million
• Pre-tax profit down 58% to £118.4 million
• Final dividend unchanged at 12.1p per share

Chief executive Mark Coombs said:

"While the global macro environment still presents some near-term uncertainty, the situation in Emerging Markets is improving and the breadth of investment opportunity helps to mitigate the risks. Ashmore's long-term investment approach has been proven across many different market cycles and facilitates access to the exceptionally attractive valuations currently available across Emerging Markets. Risk appetite will improve as some of the recent macro headwinds abate, supporting a recovery in Emerging Markets asset prices and higher investor allocations.”

ii round-up:

Specialist emerging markets fund manager Ashmore Group (LSE:ASHM) today detailed a fall in assets under management (AuM) due to increased risk aversion due to a combination of the war in Ukraine, elevated inflation and rising interest rates.

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AuM fell by almost a third in the year ended 30 June to $64 billion following a $16.6 billion decline in investments and net fund outflows of $13.5 billion. Group operating costs however fell by 7% for the year to the end of June, with accompanying management outlook comments pointing to potential for improving macroeconomic conditions as inflation moderates. 

Ashmore shares rose more than 5% in UK trading having come into this latest update down by a third year-to-date. Shares for larger rival Schroders (LSE:SDR) are down by around 27% in 2022, while hedge fund manager Man Group (LSE:EMG) is up 4%. 

Ashmore invests in asset classes including sovereign and corporate debt, equities, and real estate across emerging markets on behalf of its institutional and retail clients. 

Adjusted profit (EBITDA) fell by 16% to £164.3 million, while statutory pre-tax profit fell 58% to £118.4 million, hit by a revaluation of its seed capital investments. A final dividend of 12.1p per share left the total payment for year unchanged at 16.9p per share. 

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Broker Morgan Stanley summarised the results as broadly in line with expectations and reflective of the tough economic backdrop. 

ii view:

Started in 1992, Ashmore is today a specialist emerging markets fund manager and constituent of the FTSE 250 index. Most of its investments are made across debt markets, with around 10% in equities and under 3% in alternative assets.  

For investors, the continued fall in AuM warrants caution, geopolitical tensions mean investment in Russia is largely out of the question, while the situation in Taiwan and its impact on the West’s relationship with China is not to be forgotten. The growing use of low-cost exchange-traded funds (ETFs) also increases competitive pressure on management fees, with the trend for rising interest rates a tough one for a predominantly bond manager – bond prices usually fall as interest rates rise. 

On the upside, Ashmore is a specialist in emerging markets and, although higher risk, growth prospects in the emerging world should exceed that of highly indebted developed economies. No group debt, a flexible cost base and a dividend yield of over 8% also offer attraction.

On balance, and while some caution looks sensible, income orientated investors are likely to remain patient. 

Positives: 

• No group debt
• Attractive dividend (not guaranteed) 

Negatives:

• Uncertain economic outlook
• Fee pressure from increased tracker funds

The average rating of stock market analysts:

Hold