Expansion Into Colombia And India Will Open New Opportunities In Emerging Markets

Key Takeaways

• Positive trends in emerging markets and strategic diversification are poised to enhance Ashmore's revenue and margins.
  
• Expanding local offices and focus on investment-grade fixed income may boost earnings and stabilize income streams.
  
• Ashmore Group faces declining revenue and profitability due to lower Assets under Management and competitive pressures, with market volatility further impacting future financial stability and growth opportunities.

Catalysts

Ashmore Group plc is a publicly owned investment manager.

• Improving sentiment in emerging markets (EM) leading to a reduction in redemptions and a positive trend in net inflows are likely to enhance Ashmore's future revenue growth.
  
• Continued diversification into equities, local currency bonds, and private markets, particularly in regions such as Colombia and India, is expected to result in higher revenues and potentially expand net margins due to product mix.
  
• Expansion of local offices and platforms, which experienced significant revenue growth and have higher operating margins, should lead to improved earnings and net margin expansion over time.
  
• The potential for EM economies to experience higher GDP growth and offer attractive valuations compared to developed markets is likely to drive increased investor interest and boost Ashmore’s revenue from asset inflows.
  
• Strategic focus on investment-grade EM fixed income as a risk-reducing asset class may attract more conservative investors, potentially expanding Ashmore's client base and stabilizing fee income.

Ashmore Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ashmore Group's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 42.2% today to 42.9% in 3 years time.
• Analysts expect earnings to reach £77.6 million (and earnings per share of £0.11) by about February 2028, up from £72.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £100.6 million in earnings, and the most bearish expecting £69.4 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 15.4x today. This future PE is greater than the current PE for the GB Capital Markets industry at 12.0x.
• Analysts expect the number of shares outstanding to grow by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

Ashmore Group Future Earnings Per Share Growth

Risks

• The Ashmore Group experienced a 14% year-on-year decline in net revenue due to lower average Assets under Management (AuM), which could negatively impact their future income streams and financial stability.
  
• There was a reported drop in diluted EPS by 17% year-on-year, which signals decreased profitability and could affect shareholder returns and company valuation.
  
• Management fee margins have experienced competitive pressure, with a decline of about 3 basis points, which could further reduce profitability if this trend continues across their product offerings.
  
• The fluctuating and volatile market conditions, particularly in emerging markets and because of the U.S. election noise, have caused significant outflow and redemption issues, potentially leading to further disruptions in cash flow and earnings.
  
• The group's reliance on U.S. clients has decreased, which might hinder potential growth opportunities, especially if the U.S. market remains capital-heavy elsewhere, impacting future revenues from this large client base.

Valuation

• The analysts have a consensus price target of £1.705 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 £1.4.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £180.7 million, earnings will come to £77.6 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of £1.68, the analyst price target of £1.71 is 1.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.