UBS raises Ashmore stock rating to Buy, targets GBP1.80

On Friday, UBS analyst Michael Werner upgraded the rating of Ashmore Group (LON:ASHM:LN) (OTC: AJMPF) from Neutral to Buy, setting a new price target of GBP1.80, an increase from the previous GBP1.75. Werner’s optimism about the investment firm is based on expectations of improving inflows due to two main factors: a shift away from U.S. capital markets and a weakening U.S. dollar, which is likely to boost allocations to emerging market (EM) debt and equity strategies. According to InvestingPro data, Ashmore maintains a strong financial health score of 2.63 (GOOD), with particularly robust cash flow metrics.

In his analysis, Werner highlighted that excluding Ashmore’s net capital position, the market is valuing the company’s underlying asset management business at only 8 times forward earnings per share (EPS). This valuation is 1.5 standard deviations below the norm and sits at the lower end of Ashmore’s historical range. This assessment comes despite the fact that Ashmore has seen improving flows in recent quarters. InvestingPro analysis suggests the stock is currently undervalued, trading at a P/E ratio of 13.87 and price-to-book of 1.2. The company has maintained dividend payments for 19 consecutive years, demonstrating strong shareholder commitment.

The shift Werner refers to involves a move away from U.S. capital markets, as outlined in the UBS report ’A Renaissance for European Asset Managers? The Stars are Aligning...’. This trend could be beneficial for European asset managers like Ashmore. Additionally, the weakening of the U.S. dollar is anticipated to result in higher allocations to EM debt and equity strategies, a sector where Ashmore has established expertise.

The upgrade by UBS reflects a positive outlook for Ashmore Group, suggesting that the firm is well-positioned to capitalize on the current financial environment. The new price target implies a potential upside from the previous target, indicating UBS’s confidence in Ashmore’s growth prospects.

Ashmore Group, known for its focus on emerging markets, could see a significant impact from these anticipated changes in investor behavior and market dynamics. The UBS upgrade and price target adjustment provide a signal to the market about Ashmore’s potential for growth in the near term.

In other recent news, Ashmore Group has faced a downgrade from Jefferies analyst Laura Gris Trillo, who adjusted her rating on the investment manager’s stock from Buy to Hold. The price target was also revised downward to GBP1.70 from the previous GBP2.20. This decision is influenced by concerns over geopolitical tensions and uncertainties surrounding the Federal Reserve’s interest rate policies, which are impacting emerging markets. Ashmore Group is projected to see a decline in net new money, with an estimated outflow of $1.6 billion in the second quarter of fiscal year 2025, following a $0.7 billion outflow in the first quarter. These projections align with broader macroeconomic trends and are further affected by negative mark-to-market valuations. Despite these challenges, the company’s share price decline is somewhat mitigated by its excess capital, which accounts for 50% of its market capitalization, and a stable 10% dividend yield. The new price target reflects limited potential for upside, leading to the stock’s downgrade amid heightened volatility in emerging markets. Investors are closely monitoring the implications of global economic policies and geopolitical risks on Ashmore Group’s prospects.

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