Shore Capital downgraded Ashmore to ‘sell’ from ‘hold’ on Monday on valuation grounds as it cut its forecasts.
The broker said: “Having thought that Ashmore’s valuation was looking stretched (at 450p) at the time of January’s Q2 AuM update (which reported a fourth consecutive quarter of net outflows), we now find ourselves downgrading forecasts, mainly on a sharper than expected contraction in the blended management fee yield.”
However, Shore noted the shares have continued to move upwards and, at a Jun ’22 price-to-earnings ratio of 18.5x, it reckons the company’s deserved sector premium has now “gone too far”.
“With our Jun ’21 numbers flattered by large seed gains and an unusually high performance fee, we now use Jun ’22 as the base year for our valuation,” it said. Shore cut its earnings per share estimate for that year by 2% on multiple negative mix impacts on the revenue yield but lifted its fair value from 405p to 415p.
“With the risk of inflation shocks arguably higher than for many years, which are never good news for bonds, we think the risk/reward in the current share price is unfavourable and the safe dividend yield (on a likely flat payment) of 3.6% no longer offers valuation support.
“Having last turned seller of the shares in July 2019 (at 515p) before double-upgrading to ‘buy’ in March 2020 (at 311p), we come full circle and move our recommendation back to sell on valuation grounds for this well-managed EMD specialist.”
