Why GQG Partners Remains One of Our High Conviction Buys Despite Adani Turbulence

Despite recent turbulence, we see GQG Partners Inc (ASX: GQG) as a strong long-term opportunity. The company’s share price dropped following news about its investment in Adani Group, particularly after the indictment of Adani’s chairman. However, we believe the impact is relatively limited. With over 90% of GQG’s funds under management (FUM) invested in non-Adani assets, the core of its FUM hasn’t been significantly affected by the drop in Adani-related stocks. While we’ll continue to keep an eye on how GQG manages its Adani investments, we’re confident that the overall impact on the business will remain minor. Right now, we find GQG attractively priced. With an estimated earnings multiple of less than 10x for FY25, the stock offers significant value, and the potential dividend yield exceeds 7%. Additionally, GQG has initiated a share buyback program, which signals management’s belief that the stock is undervalued. With its strong long-term track record, we see GQG as a solid investment opportunity for those seeking both income and growth. Looking at the company’s growth potential, we’re impressed by the recent performance. In the first half of 2024, GQG saw a 46.5% rise in average FUM, reaching $139.5 billion, driven by net inflows of US$11.1 billion. By August 31, 2024, FUM had further increased to US$160.8 billion. If this trend continues, we expect strong earnings growth to follow. GQG’s 53.7% jump in distributable earnings and 46.3% rise in dividends per share are clear indications that the company is successfully translating growth into tangible returns for its shareholders. We also appreciate GQG’s capital-light business model, which allows it to scale efficiently without heavy investments in physical assets. With a relatively low price-to-earnings (P/E) ratio, we believe the stock is undervalued, offering an attractive mix of solid dividend income and long-term growth potential. This operational efficiency, combined with its strong market position, makes GQG a compelling option for those seeking both income and capital appreciation. We’re particularly impressed with GQG’s long-term performance. All of its strategies have outperformed their respective benchmarks over the past three and five years, and the company has achieved top decile alpha and Sharpe ratios. With 10 of its 12 funds now carrying a Morningstar Gold Medal rating, GQG has proven its ability to deliver strong, risk-adjusted returns. This consistency will likely continue to attract investors, particularly as GQG expands its presence globally. The company’s distribution capabilities are another key factor in its growth story. GQG ranks as one of the top 10 mutual fund families by net flows in the U.S. and leads its category in Australia. Its UCITS complex has surpassed US$8 billion in assets, growing 32% since the end of 2023. This robust distribution platform, combined with GQG’s global reach, positions the company for continued growth across various markets. Finally, GQG’s commitment to rewarding its shareholders is clear. For the half-year ending June 2024, the company declared a dividend of 6.41 cents per share, a 53.7% increase from the previous year. This marks three consecutive years of dividend growth, with a payout ratio of 90% of distributable earnings. We view this ongoing commitment to returning value to shareholders, alongside its focus on long-term growth, as a strong indication that GQG is well-positioned for the future. How to Buy GQG Shares Now Following recent events, GQG shares have declined to approximately $2 per share, falling below the 200-day moving average. Despite this pullback, a strong base of buyers remains in the $2 to $2.20 range, providing support and allowing GQG to consolidate. This consolidation could set the stage for a potential resumption of the rally. GQG continues to be a fundamentally strong company with significant growth potential, a trend reflected in its share price movement. From a technical perspective, the Relative Strength Index (RSI) indicates the stock is in oversold territory, presenting a potential buying opportunity. Currently, the stock is at the 50% retracement level from the November 2023 lows to the July 2024 highs, providing solid near-term support. The immediate resistance level is at $2.40, which aligns with the 38.2% Fibonacci retracement. A breakout above this level could signal the resumption of an upward trend. While the current price action presents an appealing long-term buying opportunity, we advise caution. A dollar-cost averaging strategy is recommended for a more risk-adjusted entry. Our long-term target price remains at $3.30, representing an upside potential of approximately 42%.