Emerging Markets Will Expand Capital Flows Amid Fee Pressures

Key Takeaways

• Surge in emerging market allocations and intra-EM capital flows could drive much faster-than-expected growth in assets and revenues.
  
• Differentiated products, technology-led distribution, and strong momentum in key local markets position Ashmore for accelerating margins and outperformance over peers.
  
• Intensifying fee compression, client concentration, and limited operational scale threaten Ashmore's competitive positioning, revenue growth, and ability to attract sustainable asset flows.

Catalysts

Ashmore Group plc is a publicly owned investment manager.

• Analyst consensus expects improving client activity and flows, but this may sharply inflect upwards as the multi-decade cyclical underweight by global investors reverses, triggering a surge of reallocation to emerging markets and driving Ashmore's AuM and revenues substantially higher than consensus projects.
  
• While consensus sees margin uplift from equities and alternatives growth, Ashmore's rapid progress in building high-performing, differentiated products-combined with outsized momentum in India, Colombia, and local private markets-could accelerate the shift to structurally higher net margins and fee earnings faster than peers anticipate.
  
• Positioning as both a provider and facilitator of inter-emerging market (EM-to-EM) capital flows, Ashmore is poised to capture unique sources of growth as trade and investment deepen between EM economies, unlocking new client segments and revenue streams that global competitors cannot access.
  
• The ongoing rise of emerging market middle classes and favorable demographic and income trends will structurally expand the addressable asset base for Ashmore over the next decade, setting the stage for compounded AuM growth and sustainable double-digit earnings expansion.
  
• Ashmore's strong balance sheet, substantial seed capital program, and early adoption of technology-driven distribution give it the flexibility to rapidly launch and scale new products, accelerating AuM capture and revenue growth well beyond industry peers as the platform leverages both efficiency and innovation.

Ashmore Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ashmore Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ashmore Group's revenue will decrease by 0.9% annually over the next 3 years.
• The bullish analysts are assuming Ashmore Group's profit margins will remain the same at 42.2% over the next 3 years.
• The bullish analysts expect earnings to reach £70.6 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 bullish analyst cohort, the company would need to trade at a PE ratio of 24.5x 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

• Ongoing industry-wide fee compression and increased competition from low-cost ETFs and index-trackers are putting sustained pressure on Ashmore's management fee margins, as demonstrated by the 3 basis point decline in net fee margin and 17 percent year-on-year drop in net management fees, which may limit future revenue and earnings growth.
  
• The diminishing home-country bias among global investors, alongside improved access to passive products and alternatives, reduces incremental demand for Ashmore's core active EM mandates, threatening to constrain Ashmore's long-term asset gathering capabilities and topline revenue growth.
  
• High client concentration, with a large proportion of AUM sourced from sovereign and institutional clients-especially in the Americas, where allocations have dropped from 30 percent to 11 percent-creates vulnerability to large-scale redemptions and significant net outflows, leading to potential volatility in AUM, revenue, and earnings.
  
• The continued rise of ESG and sustainable finance trends, coupled with heightened regulatory scrutiny, may limit Ashmore's ability to attract flows into EM assets that lag on governance, transparency, or climate risk metrics, potentially resulting in asset outflows or stagnation and further pressure on net revenue and margins.
  
• Ashmore's legacy cost base and smaller operational scale compared to mega-managers restricts its ability to invest in technology and diversify offerings at scale, putting long-term pressure on net margins and undermining competitiveness and earnings growth as the asset management industry continues to consolidate.

Valuation

• The assumed bullish price target for Ashmore Group is £2.17, which represents two standard deviations above the consensus price target of £1.55. 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be £167.6 million, earnings will come to £70.6 million, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of £1.78, the bullish analyst price target of £2.17 is 18.2% 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.