Emerging Markets Expansion Will Increase Client Activity But Earnings May Face Pressure

Key Takeaways

• Increasing client engagement and strategic shifts toward equities and alternative assets can enhance revenue growth and net margins over time.
  
• Expanding in emerging markets and focusing on private market projects diversify revenue streams, boosting long-term earnings.
  
• Declining revenue, profitability, and earnings amid competitive pressure and market volatility may hinder Ashmore Group's future growth and earnings stability.

Catalysts

Ashmore Group plc is a publicly owned investment manager.

• Client activity levels are increasing, with improved net flow positions driven by stable subscriptions and reduced redemptions. This could lead to higher revenue growth as client engagement picks up and assets under management (AuM) increase.
  
• Strategic initiatives such as the growing equities business and alternative assets are expected to be margin enhancing over time, potentially leading to higher net margins and earnings as demand shifts towards these higher-margin offerings.
  
• Expanding local platforms in emerging markets like India and Colombia, along with more regional offices, are likely to drive revenue growth through increased AuM in burgeoning economies.
  
• The focus on long-term private market projects, such as infrastructure debt funds, positions Ashmore for diversified revenue streams and performance fees, positively impacting long-term earnings.
  
• Emerging market economies show robust fundamentals, including strong GDP growth and fiscal discipline, which can attract increased investment flows. This could significantly boost Ashmore’s AuM and subsequently, its revenue and earnings.

Ashmore Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ashmore Group's revenue will decrease by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 50.2% today to 41.1% in 3 years time.
• Analysts expect earnings to reach £66.1 million (and earnings per share of £0.09) by about April 2028, down from £93.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £96.9 million in earnings, and the most bearish expecting £42.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, up from 8.9x today. This future PE is greater than the current PE for the GB Capital Markets industry at 10.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Ashmore Group Future Earnings Per Share Growth

Risks

• Net revenue declined by 14% year-on-year due to lower average assets under management (AuM), which can impact future revenue growth if the situation does not improve.
  
• The management fee margin decreased from 37 basis points to 35, indicating competitive pressure and potentially affecting future earnings.
  
• Adjusted EBITDA decreased by 21% year-on-year, indicating reduced operational efficiency or profitability, which could further compress net margins.
  
• Despite achieving performance fees, the company's overall earnings per share (EPS) decreased by 17% year-on-year, highlighting pressure on earnings sustainability.
  
• The financial climate, including market volatility and U.S. political uncertainty, may adversely impact flows and investor sentiment, potentially affecting future revenue growth and earnings stability.

Valuation

• The analysts have a consensus price target of £1.515 for Ashmore Group based on their expectations of its future earnings growth, profit margins and other risk factors. 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 £1.15.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £161.0 million, earnings will come to £66.1 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 7.4%.
• Given the current share price of £1.28, the analyst price target of £1.51 is 15.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.