Investment Column: Emerging market growth to spur Ashmore

Hilton Food Group; Oxford Instruments


Our view: Buy

Share price: 314p (-4.9p)

Ashmore Group may be based in the UK, and at a capitalisation of about £2.3bn is among the country's largest 350 listed companies, but it has made its money from far-flung locations around the globe.

And business is booming it seems. Yesterday, Ashmore released its results for the full year to the end of June, with assets under management (AuM) and revenues up over 40 per cent each. Of all its assets, 97 per cent outperformed on a one-year view.

The group's AuM stood at $35.3bn at the end of June, up from $24.9bn a year earlier. Full-year revenues hit £286.2m and profits were up just over a third from £159.8m to £217.2m.

While Ashmore had previously disclosed its year-end figure for AuM, analysts were expecting – in the worlds of Chris Turner from Goldman Sachs – "a rather benign set of numbers". They proved a considerable surprise on the upside, with second-half earnings per share coming in at 31 per cent above the consensus.

The second-half compensation costs, which came in at £25.9m, also undercut expectations following a record low compensation ratio the year before. The board also decided to raise the dividend to 13p, 1p ahead of analyst expectations.

The outlook for the emerging markets continues to be good. A particularly bullish-sounding chief executive Mark Coombs said the investment opportunities continue to be good, although he added it was now operating in a "lower absolute return world".

Ashmore says that asset raising was also on the up, especially from the emerging markets themselves, "and this is a trend we expect to continue". The group has already recorded £43.5m in performance fees since the results.

The specialist fund manager is trading on 16.8 times estimated 2011 earnings, according to KBC, which added that the results back up the 30 per cent share lift over the quarter. We are also bullish over its prospects. Buy

Hilton Food Group

Our view: Buy

Share price: 272.5p (-9.5p)

Meat-packing specialist Hilton Food Group sold 11 per cent more in volume terms in the first half of this financial year, taking the company's total output to nearly 103,000 tonnes.

The Cambridgeshire company pointed to strong growth in customer volumes in Central Europe – with new trade into Estonia – along with a "resilient" performance in the economically weak Western European markets behind half-year results published yesterday, showing pre-tax profits up by 12 per cent to £11.5m, with revenues up by 5 per cent to £450m.

The group's balance sheet is also strong, with debt down by more than a third at £16m compared with the same period of 2009 and cash generated from operations up by a healthy 8 per cent to £21m. There is also strong future promise, with a new facility in Denmark on track to begin production in 2011 as planned.

"Despite the difficult and uncertain economic environment across Europe, our trading over the first 28 weeks of 2010 has been encouraging," Robert Watson, the chief executive said.

Analysts are equally upbeat. Graham Jones at Panmure said: "Hilton has continued to deliver strong growth despite a negative price-mix effect and the investment in its new facility in Denmark."

We agree. The stock is already far higher than the pre-recession boom of 223p in mid-2008. And there is further to go. Buy.

Oxford Instruments

Our view: Hold

Share price: 431p (+61p)

One way of telling whether company updates are good or bad is to look at the shares. If they turn positive, it usually augurs well, while the converse tends to indicate bad news. And though movements are often coloured by external factors, sometimes, when a stock swings wildly, punters can be pretty certain about the health of their investments. And so it was with high-tech tools maker Oxford Instruments, which swelled by more than 16.49 per cent after saying that it expected adjusted pre-tax profits for the first half of the year "to be not less than £10m".

City scribblers were soon flagging upgrades, with JP Morgan Cazenove expecting consensus for full-year earnings to rise to around 30p (currently below 24p). While all this is pleasing for those who already own the stock, those thinking of buying should turn to the valuation. JP reckons that if consensus rises in line with its hopes then the stock – at 368p – would end up on a price-earnings multiple of just over 12 times. The problem is that yesterday it swung past 430p. Hold.

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