Anchor Capital unfazed by short-term slide

Anchor Capital’s fortunes have been decidedly rocky since the company went public in 2014, and the share price halved in 2017 to below R5. The latest results show a 39% drop in headline earnings, but the group is still bringing in assets. Business Day asked CEO Peter Armitage:

Has Anchor’s share price decline had a big effect on staff morale, having spiked after listing, and slid to where it is now?

We’re still up 150% since we listed and I think the core staff members are long-term players in the business. I think if you look at our plan when we started and where we’re at, we’re achieving a lot of our metrics. The staff base is intact.

You drew in 500 high net worth clients over the six months to June, but how confident are you of attracting more assets?

There are different parts to the business – equities, fixed income and offshore, so the offshore part of our business is growing very nicely.

The difficult part has been domestic equities – if you look at the past 18 months of the market, you’ve had quite a rare combination of circumstances where domestic conditions and hence domestic equities have done quite poorly, and you’ve also had a stronger currency. Usually, when the one happens, the currency’s weaker and then that alleviates it. If things continue to get tough here and we go the wrong way politically, you’ll probably see the currency weaken, which would actually give people a rand return.

No matter what the conditions are, there are always different things in which to invest and make money. If you’ve got a distribution capability and a force out there of people on the ground, you can raise assets.

You called your margins “disappointing”. How are you going to get them to where you want them?

That’s about continuing to bring assets in and keeping a tight control on costs. If the market goes up or the currency weakens, that flows into turnover but not to cost. Over the course of the past two or three years, if you didn’t have any new assets, you’ve had the markets flat so your turnover would have been flat and your costs going up between 6% and 7% a year … margins are being squeezed and we’re seeing that everywhere.

What is the proposition of a listed asset manager such as Anchor in this environment?

We don’t ever try to pitch our company as an opportunity.

It’s easy to take a short-term view on things and conditions are quite tough at the moment, but if you take a long-term view, we think it’s a fantastic business model and industry.

The natural growth of the business should go up by the rand level of the market, which has averaged 15% over the past 20 years. If you’ve got that kicker behind you your profit should grow more than that.

The challenge is the market doesn’t go up in a straight line, so there are years that this dynamic is positive and that dynamic is negative. Long-term value comes through … delivering performance, delivering service and growing the assets.

But can you draw relevance from the past 15 years for the next decade on the JSE?

I think one of the answers to that is that we’re not just associated with the local market. Probably about a third of our assets are offshore and have nothing to do with SA. And if SA really does badly in rand terms that asset pool will grow nicely.

Will you be able to do further acquisitions, given how your shares have languished?

We listed and created critical mass. So we don’t need to do acquisitions to grow and it’s probably unlikely we’ll do a big, life-changing acquisition in the foreseeable future.

We have R200m in cash so we always come across opportunities which are sort of bolt on and we’ll continue to do those kind of things. There are times that you roll up your sleeves and get on with the core business. We’re clearly not going to issue a whole lot of shares at a less than 10 price:earnings multiple.

How have you positioned your domestic portfolios?

We’ve got very little retail exposure — the only bit would be Pick n Pay, where restructuring we think will add materially to the bottom line.

We’re quite heavy in Naspers — (although we cut it to) 11% from about 15% — but it’s still our biggest holding. Tencent’s results were an absolute knockout, so valuations are not as high as we thought.

We’ve got quite a meaty weighting to Steinhoff. It is pretty much the best value large-cap industrial.

As for resources … we missed the first-quarter rally in basic materials in 2016 and at that point we still weren’t sure whether Anglo would need an emergency rights issue … but we went overweight towards the back end of 2016, specifically on diversified miners and that stance remains.

Where we don’t have exposure is the gold sector and platinum shares.

And we’ve had an overweight position in banks.

It’s probably one asset class that will benefit most from good news domestically.