Wednesday tips round-up: ASOS, IG Group, Ashmore

15th Jan 2014 07:57

Online fashion retailer ASOS on Tuesday again managed to beat market forecasts for Christmas sales. However, there were signs in the latest full-year results that the company is working harder to deliver its impressive growth. For example, it seems to be outgrowing its logistical base and marketing spend is rising. As well, sales in the US and in the-rest-of-the-world came in lower than expected. Such developments, to name but a few, are acutely important given that the firm's shares are trading on a price-to-earnings multiple of 100 times' forward earnings. Yes, the outfit may hit its medium-term sales and forecasts, validating the current valuation, but any significant shift in the company's pace of profit growth could conceivably provoke a brutal drop in the stock's price. "Capital preservation should always come first in investing and gains second," says The Daily Telegraph's Questor team explains. For that reason, Questor adds: "[it] simply cannot get comfortable about a share price trading at such lofty multiples". Hence, and with a view to protecting against any losses, it is more than happy to leave 10-20% on the table "for somebody else". Sell, Questor says. Shares of IG Group sped ahead of the market throughout the past year, rising by a third versus a gain of just 13% for the FTSE All-share. Its valuation, at 16 times' forecast earnings, however, is only a shade above that of the wider market, as the company's strategy continues to progress. That comes despite a one-tenth drop in active UK clients in the first half. True, the firm can no longer rely on its core UK market to drive growth. Yet that is not a big worry, the company has been expanding overseas. It is mulling opening an office in Switzerland while its US business is gaining scale. As well, the spread-betting specialist is adding new strings to its bow. Amongst these is a possible entry into cash-equities trading and trading via Metatrader, one of FX enthusiasts' favourite charting packages. "Provided IG Group can use those strings well, a rating of 16 times earnings does not look excessive," says the Financial Times' Lex column. Emerging markets fund management specialist Ashmore Group Chief Executive Mark Coombs has made a lot of money for investors in the past. However, and despite some of his past publicly manifested protestations to the contrary, investors are worried about the possible impact which the start of the US Federal Reserve's tapering of its extraordinary stimulus measures may have on those markets; hence the 4.1% drop in total funds under management seen in the last quarter, to $75.3bn. However, there were also one-off items which impacted the above numbers, such as two large institutional investors retiring their funds for "perfectly good reasons", The Times' Tempus explains. Yet what most bothered markets is the fact that Ashmore was forced to cut the fees which it charges in highly specialised areas of investment due to the increased competition. Nevertheless, the fund manager had already flagged on previous occasions that it expects margins will fall towards 60% in the near-term. After Tuesday's drop the stock changes hands at 16 times net earnings. Given the high cash balance that looks about right. "Further progress may need a couple of positive quarters in terms of funds inflow," Tempus says. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB