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Should You Avoid Ashmore Group plc And Buy Unilever plc And WH Smith Plc?

Shares in WH Smith (LSE: SMWH) and Unilever (LSE: ULVR) were amongst the top big cap performers in London on Thursday morning after both companies put out impressive results.

Emerging markets asset manager Ashmore Group (LSE: ASHM) also edged higher, but with less conviction, after the firm reported continued poor performance and fund outflows.

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Today I’m asking whether investors should back Ashmore for a turnaround, or buy into the strong trading momentum shown by Unilever and WH Smith?

WH Smith

Shares in WH Smith were 6% higher by early afternoon, after the firm revealed full-year results slightly ahead of City forecasts. Adjusted earnings per share for the year ending 31 August were 87.3p, compared with a forecast figure of 85.8p. The firm’s dividend rose by 13% to 39.4p, as expected.

However, the jewel in WH Smith’s crown is its travel-oriented business. Travellers’ willingness to pay over the odds for chocolate bars and soft drinks helped push trading profit at Smith’s travel division up by 10% to £80m last year. Its travel-based outlets now provide 58% of the group’s total profits, and this model is also being rolled-out abroad.

Against this backdrop, WH Smith’s 2016 forecast P/E of 17.6 doesn’t seem excessive. The balance sheet remains strong, with net cash of £25m. Last year’s operating margin of 10% shows that the margin improvement seen in 2014 has been maintained.

Although WH Smith’s dividend yield of 2.4% is below average, the payout has risen by an average of 12% per year over the last five years. This means that long-term shareholders have seen a strong rise in yield on cost. This trend could continue.

Unilever

Many companies with emerging market exposure are struggling with slowing sales at the moment. Not Unilever.

The consumer goods giant benefits from truly global diversity and a very broad range of products. Unilever said today that underlying sales rose by 5.7% during the third quarter, during which emerging market sales rose by 8.4%.

Unilever didn’t provide any new guidance on profit, but said it remained confident that core operating margin would improve this year. Based on current consensus forecasts, Unilever shares trade on about 22 times forecast earnings and offer a prospective yield of 3.1%.

That’s not cheap, but Unilever’s quality and strong performance makes it a long-term buy, in my view.

Ashmore

I’ve been tempted by the 6% yield on offer at emerging market asset manager Ashmore, but have hesitated as things seem likely to get worse before they improve. Today’s trading update suggests I could be right. Assets under management fell by 13% ($7.8bn) during the third quarter, due to a mixture of investor withdrawals and poor investment performance.

Today’s lack of share price action suggests to me that Ashmore’s results were in-line with City expectations. On this basis, the shares don’t yet look that cheap, on 17 times 2015 forecast earnings.

What’s more, earnings per share now look likely to be slightly lower than the forecast dividend of 16.9p per share. I think that downside risk remains high, so I’m going to continue to watch from the sidelines for now.

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Roland Head owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.