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The FTSE 250 share I’m taking a look at right this moment might be precisely the type of inventory I need to purchase. Low cost, with masses of cash, and a really excessive dividend yield.
After all, it’s not fairly that easy. The corporate in query is asset supervisor Ashmore Group (LSE: ASHM). This £1.2bn agency specialises in rising markets and is led by founder Mark Coombs, who can be a 29% shareholder.
Sadly, Ashmore’s share worth has tumbled 70% from the file highs seen in February 2020. I reckon that wants some clarification.
What’s occurring with Ashmore shares?
Rising markets will be troublesome for buyers to entry straight. There’s additionally a steep studying curve. For these causes, I believe Ashmore’s specialist technique is engaging as a enterprise mannequin.
The issue is that buyers have been pulling cash out of rising markets funds over the previous couple of years. Presumably they’ve been investing the money elsewhere, maybe in US tech shares, which have outperformed most different markets.
Ashmore’s complete property below administration have fallen from $94.4bn in June 2021, to only $49.5bn on the finish of June 2024.
Asset managers’ charges are often calculated as a share of property below administration. When property are down, price revenue (and income) fall sharply.
That’s what has occurred right here. Ashmore’s working revenue has fallen from £267m in 2021 to lower than £80m final yr.
Is Ashmore at a turning level?
It’s been a troublesome interval for Ashmore. However in my expertise, shifts like this hardly ever final eternally.
Sooner or later, I’d think about that buyers will begin to shift some capital again into rising markets.
One optimistic signal for me is that the efficiency of Ashmore’s methods appears to be bettering.
The corporate’s funds delivered optimistic funding positive factors in 2022/23 and throughout the six months to December 2023.
If Ashmore can lengthen this optimistic efficiency to the yr ended 30 June 2024, I ponder if buyers may begin to get once more – particularly with a market correction seemingly underway in US markets.
Money-backed dividend appears protected to me!
Coombs was prudent throughout the good years and constructed up an enormous money buffer at Ashmore. The latest steadiness sheet (31 Dec 23) confirmed £590m of surplus capital, together with £452m of money.
The corporate’s surplus capital is price about half the present £1.2bn market cap.
Dealer forecasts worth the inventory on about 15 instances earnings. However stripping out surplus property reduces this price-to-earnings a number of to round 7.5. That appears low cost to me.
Though the ten% dividend yield isn’t totally coated by earnings in the mean time, I reckon the group’s money reserves imply the payout will stay protected.
In any case, I estimate that founder Coombs receives a £35m dividend every year by way of his 29% shareholding.
I believe the primary threat right here is that it’s not possible to know when (or if) Ashmore will begin to appeal to vital new shopper money once more. Till that occurs, earnings will most likely stay weak and will fall additional.
Because of this, Ashmore shares are usually not with out threat. However on steadiness, this inventory appears critically low cost to me. If I used to be trying to purchase an asset supervisor right this moment, it’s a enterprise I’d contemplate.
