Ninety One PLC's Strategic Pivot: Can Growth Outweigh Margin Pressures?

Ninety One PLC (LSE:N1L) finds itself at a pivotal juncture. Despite posting a 4% rise in assets under management (AUM) to £130.8 billion in FY2025, the firm grapples with margin contraction, net outflows, and the lingering effects of a challenging macroeconomic environment. Yet, its aggressive push into emerging markets, strategic tech investments, and a landmark partnership with Sunlam position it as a potential long-term beneficiary of global growth trends—if it can navigate its current profitability headwinds.

Navigating Profitability Challenges

Ninety One's financials reveal a mixed picture. While net outflows narrowed to £4.9 billion in FY2025—half the £9.4 billion outflows of the prior year—the adjusted operating profit margin dipped to 31.2% from 32.0%, reflecting margin pressure. The adjusted operating profit fell 1% to £187.9 million, and the dividend was trimmed by 1% to 12.2 pence per share. These figures underscore the tension between growth ambitions and profitability.

The firm's AUM growth, however, is encouraging. AUM rose to £130.8 billion, driven by favorable market conditions and foreign exchange gains of £9.7 billion. Equities and alternatives posted strong growth, with alternatives surging 21% to £5.2 billion. Yet, the UK client group saw AUM drop 13% due to rebalancing by large institutional clients, highlighting regional risks.

The Strategic Play: Middle East Expansion and Sunlam Partnership

Ninety One's boldest moves are its geographic and partnership expansions. In the Middle East, it signed a Memorandum of Understanding (MoU) with Finstreet Limited, a blockchain-focused Abu Dhabi-based firm, to develop structured products and private debt instruments. This taps into the region's growing demand for infrastructure and alternative credit, areas where Ninety One's expertise is unmatched.

Meanwhile, the Sunlam partnership—set to add £17 billion in AUM and provide access to South Africa's institutional market—bolsters its pan-African ambitions. The deal, which will see Sanlam acquire a 12.3% stake in Ninety One, is a strategic win for diversification, reducing reliance on volatile UK and European markets.

The Middle East push, in particular, is a high-risk, high-reward bet. With Gulf nations prioritizing infrastructure investment and private debt issuance, Ninety One's early-mover advantage could yield outsized returns. Yet execution is critical: the firm must build local teams and navigate regulatory hurdles in markets like Saudi Arabia and the UAE.

The Role of AI and Operational Efficiency

Behind the scenes, Ninety One is leveraging technology to mitigate costs and enhance client service. Its partnership with Saphyre, a fintech firm, integrates AI-driven platforms to manage trading relationships, custodial agreements, and execution quality. This reduces operational friction, which is vital as fee compression and client attrition pressure margins.

The Saphyre platform also enables data-driven insights into client preferences, potentially aiding retention. In a crowded active management space, such tools could be a competitive differentiator, though the firm has yet to quantify their impact on profitability.

Risks and Roadblocks

The company's challenges are manifold. First, net outflows, while improving, remain a drag. Equities and fixed income strategies—particularly in the UK and emerging markets—face redemptions as investors shift toward passive or short-term solutions. Second, margin contraction poses a long-term threat. Even a 1% drop in margins could reduce profits by £2 million annually, a significant hit to a firm of this size.

Geopolitical risks also loom. The Middle East expansion hinges on stable macro conditions and regulatory approvals, which are far from guaranteed. Meanwhile, the Sunlam deal's success depends on cross-border distribution synergies, which historically have been hard to execute.

Investment Considerations

At current levels, Ninety One's shares trade at a P/B ratio of 1.2x, below its five-year average of 1.5x, suggesting some pessimism is already priced in. However, investors should monitor two key metrics: whether net outflows turn positive and whether margins stabilize above 30%.

The dividend, while trimmed, remains supportive at 2.8% yield, though reinvestment in growth initiatives may keep payouts constrained. For long-term investors, the firm's exposure to high-growth regions—Africa, Asia Pacific, and the Middle East—aligns with global demographic and infrastructure trends.

Conclusion: A Compelling, but Risky, Long-Term Play

Ninety One's strategic pivots are bold and necessary. The Middle East and Sunlam deals, combined with tech-driven operational improvements, position it to capitalize on underpenetrated markets. Yet, the path to profitability is fraught with execution risks and margin pressures.

The stock presents a compelling opportunity for investors willing to bet on Ninety One's ability to convert its £17 billion Sunlam boost and Middle East growth into sustained AUM and margin stability. However, short-term investors may want to wait for clearer signs of outflow stabilization and margin resilience.

For now, Ninety One remains a stock for those who believe emerging markets and alternative credit will outperform—and who are willing to tolerate near-term volatility for long-term rewards.