Passive Investment Shifts Will Erode Management Fee Margins

Key Takeaways

• Declining interest in emerging markets and passive investing trends are reducing Ashmore's asset base, fees, and profit margins.
  
• Industry consolidation, poor relative performance, and lagging digital adaptation threaten Ashmore's competitiveness and long-term earnings.
  
• Expansion across emerging markets and new asset classes, combined with operational efficiency, positions Ashmore for resilient earnings and sustainable long-term growth.

Catalysts

Ashmore Group plc is a publicly owned investment manager.

• The shift among global investors towards developed market exposure is intensifying, reducing demand for Ashmore's emerging markets products and likely causing a persistent drag on assets under management and core revenue growth in the coming years.
  
• The accelerating trend towards passive investment strategies and ETFs is putting sustained downward pressure on active management fees and making it more difficult for Ashmore to attract new flows, which is expected to structurally compress net revenue and operating margins over time.
  
• Ongoing consolidation in the asset management industry increasingly favors larger, more diversified firms with broad product capabilities, while boutique players like Ashmore risk being marginalized and losing institutional mandates, which could lead to further erosion of revenue and fee income.
  
• Prolonged periods of weak performance relative to benchmarks-highlighted by volatility in recent quarters and underperformance in some strategies-are expected to drive continued client outflows, amplifying the decrease in management fees and likely resulting in lower earnings for the business.
  
• The inability to adapt rapidly enough to digital distribution trends and modern technology, along with rising regulatory complexity surrounding cross-border capital flows and ESG requirements, is anticipated to increase cost pressures and impair competitiveness, which will cut into net margins and depress future profitability.

Ashmore Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ashmore Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ashmore Group's revenue will decrease by 6.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 42.2% today to 28.3% in 3 years time.
• The bearish analysts expect earnings to reach £39.7 million (and earnings per share of £0.06) by about July 2028, down from £72.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 24.1x on those 2028 earnings, up from 16.0x today. This future PE is greater than the current PE for the GB Capital Markets industry at 13.4x.
• Analysts expect the number of shares outstanding to decline by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Ashmore Group Future Earnings Per Share Growth

Risks

• The persistent improvement in net flows, driven by declining redemptions and steady or growing subscriptions, suggests Ashmore could experience rising assets under management and higher management fee revenue if these trends continue over the long term.
  
• The company is achieving double-digit revenue growth from its local platforms, especially in India and Colombia, and plans further expansion; this could translate into long-term revenue and earnings growth as these businesses mature and contribute a larger share to group results.
  
• Strategic diversification into equities and private markets, with ongoing net inflows and new product launches (e.g., infrastructure debt in Latin America, private equity in healthcare), opens up higher-margin revenue streams and supports the outlook for net margin improvement over time.
  
• Ashmore's operating model demonstrates flexibility and high efficiency, maintaining an EBITDA margin above 40% even through challenging periods, which could lead to more resilient net margins and higher earnings during industry upturns.
  
• The strengthening fundamentals and growth trajectories in emerging markets, with positive demographics, rising regional alliances, and reform-oriented governments, provide a supportive long-term backdrop for Ashmore's AUM growth and sustained revenue gains.

Valuation

• The assumed bearish price target for Ashmore Group is £1.2, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ashmore Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.4, and the most bearish reporting a price target of just £1.2.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £140.4 million, earnings will come to £39.7 million, and it would be trading on a PE ratio of 24.1x, assuming you use a discount rate of 8.1%.
• Given the current share price of £1.78, the bearish analyst price target of £1.2 is 47.9% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.