The GQG Partners Inc (ASX: GQG) share price was sold off on Thursday.
The fund manager's shares ended the session 19% lower at $2.13.
The catalyst for this was news that Indian billionaire Gautam Adani has been charged with fraud in the United States.
The chair of Indian conglomerate Adani Group has been indicted in New York over his role in an alleged multibillion-dollar bribery and fraud scheme.
This is bad news for GQG as it has made significant investments in the Adani Group in recent years. But is a 19% share price decline an overreaction? Let's find out.
Is the GQG share price selloff a buying opportunity?
Goldman Sachs has been looking at the news and appears to believe that the fund manager's share price decline has created a buying opportunity. This is due to the limited impact that its investments in the Adani Group could have on is profits.
Commenting on the news, Goldman said:
GQG shares fell 19% following news that US prosecutors have charged senior Adani executives, including the chairman, in connection with an alleged bribery scheme.
GQG, which holds stakes in Adani entities through its funds, said they are monitoring the situation and assessing if any actions will be taken on their portfolios.
GQG noted that in aggregate in excess of 90% of client assets are invested in issuers unrelated to Adani Group, implying at most ~10% of FUM is exposed to Adani.
The broker estimates that the impact could reduce its profits by as little as 1.3%. It explains:
[…] we present a sensitivity analysis for illustration purposes only on possible impact on GQG NPAT from potential changes in the value of the Adani assets held, where a 10-50% drop in the value of Adani assets would lead to a -1.3% to -6.6% impact on FY25E NPAT.
Such moves would imply the sell-off has been overdone with the stock now trading at ~8.5x FY25 consensus earnings (albeit on unchanged earnings) v historical average of ~11x.
In light of this, the broker has held firm with its buy rating and $3.00 price target on GQG shares.
Based on its current share price, this implies a potential upside of approximately 41% for investors over the next 12 months.
In addition, Goldman is forecasting a sizeable 7.5% dividend yield in FY 2025. If we add this into the equation, a total return of greater than 48% could be possible for investors between now and this time next year.
