Despite the share price action after last week’s Interim Results announcement, I have not lost my confidence in the progress of the £71m valued ASA International (LON:ASAI) microfinance group.
On Monday 9th September, they were trading at 87p, on the basis of being on 6 times current year current year earnings and just 4.5 times prospective.
Within days of that date the group’s shares fell off the cliff, easing back to 56p just before the Interim Results were published.
For the life of me I could see no justifiable reason for such a fall away, apart from ‘more sellers than buyers’ – but then the market, as we all know by now, can be a ‘wicked mistress’ not to be played.
The Business
The company is one of the world’s largest international microfinance institutions, with a strong commitment to financial inclusion and socio-economic progress.
It provides small, socially responsible loans to low-income, financially underserved entrepreneurs, predominantly women, across South Asia, Southeast Asia, West and East Africa.
ASA International provides small socially responsible loans, bank accounts, savings and other financial services to start or grow businesses.
The business, which has over 2,016 branches, across 13 countries, handling its 2.3m clients, operates in Pakistan, India, Sri Lanka, The Philippines, Myanmar, Ghana, Nigeria, Sierra Leone, Tanzania, Kenya, Uganda, Rwanda and Zambia.
The Interim Results
Last Friday morning, 27th September, the company declared its Interim Results for the six months to end-June, showing a sustained improvement in its business and financial performance.
Its half-way pre-tax profits were up 267% at $28.3m ($13.8m), on the back of a 7% increase in the number of clients to 2.4m (2.2m).
The business delivered strong operational performance in H1 2024 as its loan book grew following increased demand from clients.
In the period its assets surpassed the $500m mark, the highest level since 2022.
The boosted profitability was achieved despite the negative impact of $3.5m from hyperinflation accounting for Ghana and Sierra Leone.
Pakistan, the Philippines, Ghana, Tanzania, and Kenya made a key contribution to the group’s financial performance due to increased loan demand and high loan portfolio quality in all these markets.
CEO Karin Kersten stated that:
“H1 2024 saw both operational growth as well as importantly increased profitability. The overall operating environment across most of our markets improved during the first half of the year.
Encouragingly, demand remains high for our products from clients as economic conditions, while still challenging, have eased when compared to the same period in 2023.
Clients and staff continue to demonstrate their resilience in these economic circumstances.
In particular, we have demonstrated improved performance in our major operating countries – Pakistan, the Philippines, Ghana, Tanzania and Kenya – almost all of which recorded excellent portfolio quality, client and OLP growth, and profitability.
The improved performance in our major operating markets was slightly offset by FX movements in certain markets.
Currencies in most of our markets have been relatively stable against the USD in H1 2024.
Away from the clear operational impacts, the effects of inflation, including hyperinflation accounting, other currency movements, are expected to continue to dampen financial performance in USD terms in 2024.
However, given the improved operating developments we have already seen in 2024, we are confident of being able to continue our strong performance for the remainder of 2024.”
Analyst View
Stephen Barrett at Cavendish Capital Markets has upped his Price Objective to 148p from 136p previously, reflecting his higher forecasts.
His current year estimate to end-December, is for revenues of $168.2m ($148.2m) and $53.4m ($38.0m) in adjusted pre-tax profits, generating 23.2c (15.0c) per share with the UK equivalent of 17.9p (12.1p), and paying a 4.6p dividend per share (nil).
For 2025 Barrett goes for $183.4m revenues, $56.6m profits, 27.5c earnings (UK 21.2p) and paying a 5.7p per share dividend.
Even better figures are being shown in his estimates for 2026, where he is setting his cap at $201.3m revenues, $64.2m profits and 34.4c per share in earnings (UK – 26.6p), with a 7.7p dividend.
In My View
On the basis of the Cavendish Capital Markets estimates, the current 71p share price offers massive upside.
In the last year it has been up to 110p and as low as 23p, clearly showing that it is a tight market and subject to big swings in share price.
However, I believe that as the message starts to get out into the marketplace, the company’s value will be appreciated, with its shares reflecting such recognition.