Buying Ashmore and CKH Update

One of the most frustrating things about writing investment research is when you do good work and the stock goes up, but you forgot the bit about buying it. I wrote up Ashmore Plc for my friend Olivier at Emerging Value around 18 months ago, but I was too greedy holding out and the price ran away. I still consider it some of my best differentiated analysis and had kicked myself, especially for missing a couple of 10% divs in the interim.

But the beauty of a deep watchlist is opportunities continuously being thrown up and I was surprised to see Ashmore hit new lows this year, plunging 25% below the 200p/share of my last profile. I have now initiated a 4% position in the stock at what I believe to be outstanding value in a business close to maximum pessimism.

Nothing hugely material has changed since my original piece, so I would encourage readers to find it here and I won’t repeat myself too much on the finer details of the business.

The TL;DR version is:

Ashmore is a UK value stock and, even worse, a financial, which already puts it in one of the most hated sectors on the planet. Further, Ashmore is an investment manager specialising in … Emerging Markets … credit. It would actually be hard to imagine a company with more reason to be out of favour in this market.

Despite this, the company is a high quality manager, with most funds ahead of their benchmarks over the long-term. Ashmore also maintains a liquid balance sheet, holding half its market cap in cash and seed investments. This supports a very stable dividend which has now risen to unreasonable levels of 8.5%, purely on the back of the falling share price.

I wouldn’t change any of this except the net liquidity is now closer to 2/3 of Ashmore’s market cap and the dividend is over 11%. Mark Coombs remains in charge with serious skin in the game. You will notice a nose dive on the chart just after the US election, with the company being an avatar for what struggles in a world where the USD reigns supreme and big tech recieves infinite inflows.

The company is still capital light, although EBITDA margins fell to 42% in 2024 along with AUM down to $49b, from 64% and $56b respectively in 22/23. If anything, this shows the defensive ballast Ashmore’s model has to absorb (very) rough stretches.

I am hopeful we are somewhere near absolute trough earnings for an EM bond manager and yet the company remains solidly profitable earning 4.8p in H1 ‘25. Annualising this (9.6p) gives:

• a P/E of 15x

• a P/E of 6x ex-cash and seed investments

• a P/E of 3x ex-cash and seed using the longer-term average earnings (21p) I used in my former piece.

These are very reasonable multiples considering the rapid upward inflection earnings are capable of.

It is worth noting though that current profitablility won’t cover the 16p annual dividend, so we will find out this year whether management would rather reduce it or simply use their excess reserves. Either option is fine with me, although a cut might see another wave of selling. Buybacks would be even better, but they don’t seem to be in the conversation.

I track a large number of UK small caps and they really are incredibly volatile. The selling in some of these names even on no news has been relentless, but it’s worth remembering the downside protection inherent in Ashmore here. A further 1/3 fall would have the company trading at net cash and seed investments only. While this isn’t impossible, it seems like a pretty decent backstop.

CK Hutchison update

A few readers have noted the welcome news of CKH selling a chunk of their port business, including their interest in Panama Canal infrastructure, to a US consortium for $19b. A sum equal to the company’s market cap or 1/2 its enterprise value.

Considering the acquired assets contributed only around 13% of H1 EBITDA, this is highly accretive for the company and leaves it with many options, including an enormous special dividend or the transformation to a net cash balance sheet.

The 26% increase in the shares since the announcement would seem to drastically undervalue the deal, but being a family-controlled HK conglomerate, the market may be sceptical of how the funds will be used. Clarity from the company will hopefully spark a further re-rate in this regard.

It’s great to see one of the classic Asian “value traps” unlock some value and shows how cheap the stock was/is. Despite insistence to the contrary, this was a rushed sale forced upon the company by geo-politics and was still done at a huge premium to carrying value. Watch this space.

Guy

I own shares in Ashmore and CK Hutchison.

As always, this isn’t investment advice. Please do your own due diligence and seek professional advice if you’re unsure about your finances.