The financial services sector has not been a particularly popular place to invest in 2014. Indeed, evidence of this can be seen in the performance of three of its biggest incumbents: Ashmore (LSE: ASHM), Schroders (LSE: SDR) and 3i (LSE: III). All three companies have underperformed the FTSE 100’s 1% gain in 2014, with shares in Ashmore falling by 20% since the turn of the year. Meanwhile, Schroders is down 6% and 3i has seen its share price fall by 2% over the same time period. The future, though, could be much stronger for all three companies and their investors. Here’s why.
This week’s results from Ashmore were slightly disappointing. On the one hand, assets under management remained robust and costs were, as ever, kept under control. Furthermore, the company remains well positioned to benefit from a further correction to global economic imbalances, with emerging markets looking set to play a bigger role in client portfolios moving forward. This would suit Ashmore and could stimulate growth in future.
However, the headline numbers don’t look good. Certainly, the strength of sterling made things seems worse but, even with its effects removed, profit before tax still fell by 16% year-on-year. The major reason for the fall was lower performance fees that were hurt by continued market volatility during the year. While disappointing, the company remains in good shape and is set to bounce back in the current year.
Indeed, Ashmore is forecast to increase earnings per share (EPS) by 18% in the current year, which would prove to be a very welcome result following a highly challenging year. This compares favourably to Ashmore’s two sector peers, Schroders and 3i, which are set to increase their bottom lines at a lower pace.
For instance, Schroders is due to report EPS that is up 2% year-on-year for the current year, while next year looks even better as the company is forecast to increase its bottom line by 13%. Meanwhile, 3i is expected to report an earnings decline of 14% in the current year before recovering somewhat next year with a rise of 4%.
However, it’s on valuation where investing in all three companies starts to make real sense. Ashmore currently trades on a price to earnings ratio of 14 which, when combined with its strong growth rate for the current year, means that it has a price to earnings growth (PEG) ratio of just 0.8. It’s a similar story with Schroders, with its P/E ratio of 15.9 equating to a very attractive PEG of 1.1. Meanwhile, 3i’s current share price screams value. Even with the current year’s anticipated fall in EPS, it still trades on a P/E of just 7.9.
So, while lumps and bumps in the road ahead for all three companies are perhaps inevitable, Ashmore, Schroders and 3i all appear to have bright prospects and offer great value for money at current price levels. For these reasons, they could make a positive contribution to your portfolio moving forward.
Peter Stephens owns shares in 3i. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.