With Aberdeen Asset Management about to disappear into the maw of Standard Life, Ashmore Group will soon be the only big UK-listed fund manager giving pure exposure to emerging markets. On that ground alone, it’s worth a fresh look, but yesterday’s trading statement offered another reason. The group announced its first quarter of positive inflows for three years, sucking in a better-than-expected net $1.4 billion of new mandates.
Emerging markets have been out of favour with investors for some time, partly because of the commodities and energy downturn, partly because of rising interest rates in America. It’s too soon to call the end of that headwind, but Ashmore is doing well in the meantime, not least because of its benchmark-beating investment performance over three and five years. Total assets under management grew by 7 per cent in the quarter to the end of March, thanks to a positive investment performance, as well as the additional assets.
Mark Coombs, chief executive, says that the outperformance of emerging markets relative to their developed peers will put pressure on investors underweight in those newer markets. At some point, though, the sour sentiment will lift. Large chunks of Asia, Latin America, eastern Europe and Africa are growing two, three or four times faster than the sluggish West.
Ashmore, with its focus on fixed-income investments, doesn’t get much benefit from any lift to equity markets, but neither is it quite so exposed to a nasty downturn. Moreover, it does seem to be able to winkle out healthy returns to investors even in an era of rising US interest rates.
With its high proportion of variable pay to fixed, Ashmore is also well equipped to cope with difficult times, which is important with fees under pressure. Mr Coombs, with his 43 per cent stake, is a boon for those investors who like their interests aligned with dominant owner managers, though his holding does rule out anything but the most friendly of takeover bids.
Analysts are forecasting earnings per share of more than 23p for the full year to June and a dividend of almost 17p. After yesterday’s 5.7 per cent fall in the shares to 343p, they trade on an undemanding 15 times expected earnings and yield 4.7 per cent, with plenty of cash on the balance sheet to sustain it.
My advice Buy
Why Skilled specialist boutique with flows turning positive
Circassia Pharmaceuticals
Investors had something of an allergic reaction to Circassia Pharmaceuticals last June after the company suffered a setback in a trial for a product to combat allergies to cats. However, yesterday’s follow-up announcement — that the biotech specialist would end new investment in its anti-allergy treatments after a second flop, this time for a house dust mite allergy — barely triggered a sneeze.
The results of the study, showing that its treatment did not show a significant effect compared with a placebo, is another blow for Circassia, but not one to make the eyes water. It has been diversifying since it came to the stock market in 2014 via a series of respiratory drugs acquisitions, the most recent of which was last month’s $230 million deal with Astrazeneca for commercial rights to two drugs to treat chronic obstructive pulmonary disease in the United States.
Circassia has raised £477 million through its 310p-a-share IPO and its 288p-a-share placing and open offer in 2015 to fund the acquisitions. The shares remain firmly below the listing price, but with veteran backers such as Neil Woodford playing the long game, others should be tempted to follow.
My advice Hold
Why Big backers are supporting its diversification into respiratory drugs
South32
South32 is a London-listed company worth £15 billion, but for a couple of reasons it tends not to attract a great deal of attention.
The mining group, which is also listed in Sydney and Johannesburg, is not included in the FTSE because not enough of its shares are traded in London. Yet when BHP Billiton, its former parent company, tried to spin it off without a London listing there was an uproar, indicating that there was some demand here for its motley collection of coal, manganese and alumina in Australia, South Africa and, to a lesser extent, South America. The shares had a blockbuster 2016, but now face uncertain prospects.
The company said yesterday that it was ditching a plan to buy the Metropolitan Colliery in New South Wales. The hitch was S32’s reluctance to yield to demands from the Australian competition authority that it give concessions to Australian steelmakers, who buy the coking coal produced by Metropolitan.
Bad news? Perhaps. The silver lining, as analysts from Investec pointed out, is that it proved that S32 would not expand for the sake of expansion. The shares were down 7¼p at 164¼p in London yesterday, in line with other miners who were under the cosh because of weak iron ore prices.
We like the logic of South32 — putting BHP’s waifs and strays into business that can properly care for them — but more than most it represents a step in the dark right now.
My advice Avoid
Why There are too many unknowns hanging over the commodities it produces
And finally . . .
Paul Zwillenberg’s strategic review of the Daily Mail and General Trust is beginning to take shape. The chief executive of the Daily Mail publisher said in December that there would “no sacred cows” and yesterday the company confirmed that it had offloaded Elite Daily, an American online news platform, to Bustle Digital Group for an undisclosed sum. DMGT wrote down its value by £25 million at the end of last year and said the sale was a “significant step” towards profitability for Mail Online. The shares fell 10p to 706½p.
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