Should you buy, hold or sell GQG Partners shares?

Over the past six months the GQG Partners Ltd (ASX: GQG) share price has risen nearly 70%.

Long term investors could be forgiven for thinking they've missed the buying opportunity. However, the stock continues to trade on 11x earnings with a 9% dividend yield.

The GQG franchise continues to execute across portfolio performance and global distribution build out, driving consistent fund inflows into what we believe is a large capacity opportunity.

GQC Partners business strategy and outlook

GQG Partners is a boutique investment management firm focused on global and emerging markets equities.

It was founded by lead portfolio manager Rajiv Jain and CEO Tim Carver in 2016. Before founding GQG, Jain served as a co-CEO (2014-2016), CIO and head of equities (from 2002) at Vontobel Asset Management.

At Vontobel, Jain led the international equities strategy from 2002 and the emerging markets strategy from 1997, building an enviable track record and being a key figure in the firm's growth from US$400 million in assets under management when he joined to US$50 billion in 2016.

Today, GQG manages four key strategies across global, international, US and emerging markets equities.

The firm employs a fundamental approach to identifying quality companies trading at attractive prices, constructing active, core style portfolios accessible in a range of vehicles and jurisdictions for their client base, which covers institutional, intermediary, wholesale and retail channels.

GQG's investment team has delivered first quartile alpha, bottom quartile beta, and below median fees - a highly attractive combination to most asset allocators, which gives us confidence that presently high net inflows will continue for the firm.

More recently, GQG announced they are establishing a physical presence in the Gulf region, to capitalise on what they see as an attractive opportunity for further growth in assets given the demand from institutional investors in the region.

Combined with a growing presence in the US independent financial advisor market, we believe GQG's US$143 billion FUM today retains a significant runway.

Returns

As a quality growth manager, we only invest in businesses with sustainable competitive advantages, evidence of impressive execution, and sustainable growth runways. Within our portfolio, we take a contrarian approach, allocating the most capital where compelling valuation opportunities exist. GQG fits this criteria.

The key reason for the recent share price rally is a significant increase in the profitability of the business as funds under management (FUM) has increased from around US$106 billion at September 30, 2023, to US$143 billion today. That is, the share price has followed a change in the company's profitability, and it continues to trade at a forward PE of 11x and offers a 9% dividend yield.

As GQG continues to perform to expectations, with consistent positive monthly net flows from higher fee channels (e.g., wholesale markets) and strong fund performance across all products on a rolling three-year time-frame - we believe the market will incrementally re-rate the stock, paying a deservedly higher PE ratio for GQG in this phase of its lifecycle.

While markets can be volatile, affecting GQG's base of FUM (and profitability), long-term shareholders therefore are currently being offered nearly a 9% dividend yield, and a share price the will likely benefit from both a growth in earnings - as FUM continues to compound - and the potential for an expanding PE ratio.

Recommendations

With all GQG funds generating meaningful alpha over the past 12 months, we believe the business will continue to accumulate client flows at a rapid clip, expanding its profitability and eventually earning a higher PE multiple - as we believe is warranted for a business at this stage of its lifecycle. Buy.

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