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Increased short interest in Ashmore share price ahead of Q1 update

Ashmore Group has struggled to reverse the fall in its share price in 2022, with the stock trading at 13-year lows. As emerging markets struggle, the investment specialist is expected to report a continuation of outflows in its Q1 assets under management statement for fiscal year 2022/23 on Friday 14 October.

With Ashmore Group [ASHM.L] due to announce its Q1 assets under management statement for fiscal year 2022/23 on 14 October, analysts are not expecting an improvement to the outflows it reported during the same period last year.  

Earnings had plummeted in the fiscal year 2021/2022 and are not expected to see a major reversal in the upcoming announcement. As a result, investors in Ashmore have little prospect of a short-term improvement in the firm’s financial performance.

Shares in the emerging markets investment specialist have fallen 33.1% in the year-to-date, closing at 190.90p on 10 October — a mere 2.6% above its 52-week low of 186.00 on 15 July. The stock hadn’t traded at that low mark since July 2009, reflecting the weakness seen across emerging markets. The period began with the Covid-19 pandemic in 2020 and has accelerated following Russia’s invasion of Ukraine.

Ashmore, known for its contrarian strategies, controversially bet against the likelihood of Russia launching a full invasion of Ukraine earlier this year, a bold stance which quickly backfired. The value of Ashmore’s almost €143m stake in Russian government debt fell by 80% by the end of February, exacerbating fears over the prolonged downtown for emerging markets and Ashmore’s idiosyncratic approach.

Analysts see outflows intensifying in Q1

In October last year, Ashmore reported a 3.3% fall in total assets under management from $94.4bn to $91.3bn over the course of Q1 2021/22. An 8.8% fall in corporate debt alongside a 4.4% dip in local currency contributed the most to its losses. Alternatives grew 7.1% from $1.4bn to $1.5bn during the period, but make up a comparatively small proportion of total assets.

Momentum has not been positive in its assets under management going into the first quarter, with clients affected by the Russian debt devaluation and withdrawing $6.6bn in the three months to June this year. Total assets fell 32% to $64bn in the year to June 2022, prompting hedge funds to increase their short positions against the company. Data from ShortTracker shows that short interest in the stock rose from 3% in January to 5.7% by the end of September.

In a note to clients, investment bank Peel Hunt said they expect “little improvement in the underlying trends that Ashmore reported in Q4” in the upcoming update. “Outflows are likely to continue, and emerging market indices have moved lower over the quarter.”

Earnings exceed expectations

In its most recent report that was published on 2 September, Ashmore reported adjusted diluted earnings of 18.7p per share for fiscal year 2021/22. Despite revenue falling slightly short of the £260.94m forecasted by analysts polled by the Financial Times, earnings exceeded expectations by 3.6%, thanks to Ashmore’s 7% year-over-year reduction in operating costs.  

Investors were positively surprised by the results, particularly by the fact that the dividend of 16.9p per share was retained despite the 63% year-over-year decline in diluted earnings per share. The stock gained 9% in response to the report, but having risen from its second lowest close of the past decade the previous day, this could have been more indicative of low expectations than of strong results.

However, some analysts are still hopeful. Rae Maile of Panmure Gordon told the Financial Times that “they are very good at this”. The firm highlighted its strategy of “‘when everyone is angst-ridden, that’s when we increase risk in the portfolio and we know we will get it back’… They do what they say, and that’s what clients want.”

Analysts rate Ashmore shares a ‘hold’

Of 12 analysts providing ratings to the Financial Times as of 6 October, one gave the stock a ‘buy’ rating, three said the stock would ‘outperform’, five rate it a ‘hold’, two say it will ‘underperform’ and one advises to ‘sell’, giving a ‘hold’ consensus to the shares.

The median 12-month share price target offered by 12 Financial Times analysts of 224.50p represents a 17.6% increase on the 10 October close. The high target of 290p envisages 50.2% growth, while the low target of 175p sees the stock falling by 8.3%.

Among the 12 analysts polled by the publication expect earnings for 2023 to total 14.96p, ranging from a low estimate of 11.3p to a high estimate of 17.96p. A consensus revenue estimate of £210.77m would be a 17.2% decrease from its current revenues, and sits between extreme estimates of £192.73 to £227.32m.

Peel Hunt’s research note reiterated that “the long-term case for Ashmore remains strong” despite the unlikelihood of positive flows returning in the short term.

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