One of the reasons why Aberdeen Asset Management decided to merge with the more staid Standard Life was because Aberdeen’s exposure to emerging markets meant performance varied wildly as appetite for such assets increased and waned.
Ashmore Group is entirely exposed to such markets and almost entirely in areas such as local currencies and debt rather than in equities. This provides a degree of stability. There was a general improvement in Ashmore’s financial year to the end of June. It could hardly be otherwise; emerging markets probably hit their nadir at the turn of 2016, as did Ashmore’s share price.
The election of President Trump, though, saw another blip. The perception of higher interest rates boosted the dollar, which meant emerging markets currencies fell.
All this is saying that any fund manager with a purely emerging markets exposure can expect a volatile performance pushed about by any number of variables, and the Ashmore share price bears this out. There is little prospect that Ashmore can find shelter within a larger, more diversified group, as Aberdeen did, without the blessing of Mark Coombs, the chief executive, who speaks for 40 per cent of the stock.
There are still plenty of reasons for believing that the emerging markets story will in the long term be an attractive one. The typical investor is underweight in them, the economic and political fundamentals continue to improve and there is a sustained need for debt. Ashmore reported a rise in assets under management over the year of 12 per cent to $58.7 billion. This reflects net inflows of new business of $1.9 billion and positive investment performance of $4.2 billion.
The market, though, was dissatisfied and the shares fell 24¾p to 340½p. There were two negatives. Pre-tax profits were ahead by a pleasing 23 per cent to £206.2 million, but there was £20.8 million realised from investments in seed capital that are by definition a one-off.
Second, net margins from management fees were off from 55 per cent to 52 per cent, reflecting a change in the mix to lower-margin investments, though fee income was up by 13 per cent to £221.6 million. None of this is catastrophic, but the shares were trading at the top of that volatile range.
The total dividend is held at 16.65p. This means the forward dividend yield is below 5 per cent, suggesting no obvious reason to chase for now.
MY ADVICE Avoid
WHY Share price performance is volatile even if the long-term emerging markets story is intact, and shares trade at the top of their range
Sanne Group
Sanne is a £1 billion-plus company that is not that well known or studied. This is a pity because anyone who bought into the 2015 float at £2 would have seen their holding rise more than threefold. Part of the problem is there are no obvious comparators. The company provides administration, reporting and fiduciary services to alternative asset managers such as family offices.
There are similarities here with Equiniti, another recent stock market debutant, which provides administrative services for quoted corporates. Both are gaining from increasing outsourcing of these tasks.
Equiniti did a deal this summer to expand in the US. Sanne, which has spent £160 million on five businesses since the float, bought a company in the US at the end of last year and one in Mauritius, to serve the Asian and African markets, shortly after.
Halfway figures bear the impact of those deals: revenues doubled and profit before tax was up 54 per cent at £12.5 million; on an underlying basis it, too, doubled. Sanne is adding to those acquisitions with organic growth, which ran at 15 per cent in the first half with £10 million of annual fee income added. The shares, off 11p at 771p, sell on more than 30 times this year’s earnings — a bit rich to encourage an immediate buy.
MY ADVICE Avoid
WHY Multiple looks rich even for a high growth company
International Public Partnerships
International Public Partnerships (INPP) continues to do what it does well, buying infrastructure assets for the assured income and recycling this as dividend income, but the first half included the biggest deal yet.
The £274 million agreement gave it a 4.4 per cent stake in the gas distribution business, the majority of which was sold by National Grid. Now renamed Cadent, this was too good a deal to pass up despite its size; an asset like that probably comes along only once a decade. It was funded out of debt, subsequently wiped out by a £330 million capital raising.
One of the problems such funds have is that the supply of assets is not infinite. In a low-interest-rate environment, such income is much sought after. INPP has latched on to fibre optic broadband as one potential future supplier of such assets and has put £50 million, along with its investment adviser Amber Infrastructure, into an investment vehicle to fund this, in conjunction with the Treasury.
This makes sense in that one day fibre optic cables will be seen as an essential part of the infrastructure in the same way as gas pipelines or electricity networks, though it is as yet an unknown quantity. INPP, which has about a quarter of its assets outside the UK and is exploring possibilities in the US along with a partner there, signals its dividends several years ahead.
This year’s forecast suggests a yield of 4.2 per cent on the shares, up 1p at 163¾p. Not a huge income at this level but safe as houses.
MY ADVICE Buy
WHY INPP’s record as income provider is solid enough
And finally . . .
Halfway figures from Rockhopper do not take us much further on the crucial Sea Lion project off the Falkland Islands. Production from its assets in the Mediterranean is running as expected. The initial engineering study on Sea Lion is substantially complete. Talks are going on with UK Export Finance about an $800 million loan and there are potential contractors for another $400 million of financing, with non-binding proposals received. A decision will be made next year; much depends on oil’s price then.
