Is your emerging markets glass half-full or half empty?
If you subscribe to the view that the long-term investment case for emerging markets is more or less a given then AIM-listed asset manager Charlemagne Capital (LSE: CCAP) warrants further investigation.
If, on the other hand, you're a bearish double-dipper or you don't like trusting in others to invest your money for you -- then it's probably best to look elsewhere.
The company was all the rage when it floated in 2006 with a valuation of close to £300m. At today's mid price of 14.5p, the company is valued at a fraction of its former glories at just over £40m.
A spin-off from an asset management group founded by entrepreneurs Jim Mellon and Jayne Sutcliffe, among others, Charlemagne's current fund range can be split into four broad categories:
- Magna Mutual Funds -- Long-only UCITS-compliant funds.
- Institutional -- whereby institutions invest in a range of opportunities within emerging markets through a pooled fund.
- The "OCCO" Eastern European Fund designed to "exploit the inefficiencies of the equity markets in order to generate consistent positive returns".
- Specialist funds include both long-only funds and closed-end property funds.
Entrepreneurs don't always win
Jim Mellon remains the company's largest shareholder and is now a non-executive director, whilst Jayne Sutcliffe is CEO.
A warning here; the last time I flagged up an investment with Jim Mellon involved; namely German residential property group Speymill Deutsche Immobilien (LSE: SDIC), it went horribly, horribly wrong.
The two companies may be completely unconnected, but it's worth bearing in mind how following people with a previously excellent track record is no guaranteed route to success.
And things haven't been going too well for anyone picking up Charlemagne's shares -- unless they were lucky enough to have picked a few up at the absolute nadir of 7.25p in the spring of 2009. Otherwise, it's a general tale of woe or, at best, treading water.
The question is whether this share price malaise now presents a potentially lucrative way in to emerging markets.
Up a bit, down a bit
With its final results for 2009, Charlemagne announced a 40% increase in assets under management (AUM) to US$3.1bn. This figure is, of course, crucial to the company's success.
July's trading statement tempered things a little; group AUM was US$2.8bn, down 9.5% since the turn of the year, following the fall in global markets during the second quarter.
On full year revenues of $23.8m, Charlemagne managed a pre-tax profit of $6.9m -- down from $13.9m in 2008 -- with earnings per share of 2 cents -- down almost 60%.
Brokers' consensus forecasts for this year are for earnings of 1.1p this year, rising to 1.6p next -- making the forward price-to-earnings ratio a little over nine.
Future confidence?
But for anyone investing in Charlemagne today, it isn't really about next year's earnings -- it's really about whether confidence will return for investors investing in emerging markets longer term and, of course, how well the company will do therein, if and when that confidence does return.
As an illustration, when Charlemagne's AUM were over US$6.5bn in 2007, the company brought home the bacon with earnings per share of 20.5 US cents (i.e. not far off the current share price at today's exchange rate). The previous year when AUM were US$4.7bn, Charlemagne managed earnings of over 8p at today's rates.
OK, history is bunk and all that -- but it does show what Charlemagne may be capable of should the good times roll again. If and when they do -- today's share price will be a distant memory. Three years ago, the shares were averaging around 75p and weren't on a particularly demanding rating.
Meanwhile, the investment house had net assets of US$27.5m at the last count -- equating to over 6p per share. Charlemagne also has a good track record of maintaining the dividends through thick n' thin.
If the brokers are right about next year's 1.3p anticipated dividend, the shares are yielding around 9%, so something's going to give; either the share price will reflect the confidence or performance won't match up -- nor will the dividend.
It really all boils down to whether your view of the future for emerging markets is a case of glass half full or half empty. If it's the former, Charlemagne may well be a good way of backing your judgement. Note that Charlemagne's interim results to the end of June are due to be announced on Tuesday 7 September.
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