To derive the fair value, we use a 3-stage DCF model. We explicitly forecast the underlying cash flows (including seed capital gains) to FY27 based on our estimates. Thereafter, we assume medium-term AUM growth declines to 4.5% by FY32 and to 3.5% by FY36. We assume margins decline at 1.5% pa. We then calculate terminal value at 3.25% growth to perpetuity. We derive a CoE of c.15%, reflecting observed risk-free rates and stock beta.

This gives a suggested value of £0.5bn. To this, we add for Ashmore's excess capital, adjusted for uncovered portion of NTM dividends, and an additional buffer (Citi estimate). This suggests a rounded fair value 140p per share, which we set as our target price.

We see the following key risks to our rating and target price for Ashmore:

1) Market risk. Change in the wider credit environment; or a rally/fall in EM debt markets, leading to stronger / weaker performance of investment portfolios. A tightening in spreads than market expectations would result in higher returns and would be an upside risk to the share price; while widening in spreads would result in downside risks to the share price.

2) Different revenue margin pressure than we forecast, due to a change in fund flows in higher-margin segments (e.g. retail). A higher than expected share in retail flows would be positive for ASHM revenue and share price.

3) Better or worse cost control than we forecast, e.g. with variable compensation costs coming through at a different percentage of EBVCIT. Better Cost Control = upside risk to share price; Higher Costs = downside risk to share price.

4) FX risk. Strong USD = good, strong Sterling = bad. Ashmore is a £ reporter but AUM and a significant proportion of balance sheet cash are held in US$.    
–   FX translation impact on cash and seed capital investments goes through "other revenue".      
–   Mark-to-market gains on seed capital go through "net finance income".

5) Liquidity risk. EM securities are less liquid vs DM securities. Low trading liquidity could lead to high volatility in redemption price, and present downside risk to share price.

If the impact of the above risk factors is more or less negative than we currently anticipate, the share price could deviate significantly from our target price.