Neal Froneman of Sibanye Gold
up the industry — like BoE, Syfrets and UAL — have simply faded away,” he says.
Logan says that at the same time, some inventive asset managers have come to market with winning formulas that position their businesses well for years to come.
“But these formulas can get embedded so deeply in the culture and ethos that when circumstances shift in the market these companies can sometimes find it difficult to adapt or change.”
Indeed, the performances of Anchor and Sygnia must be seen against the fast-changing backdrop of the asset management segment.
A number of niche players, especially those with a deep value bent, have been battling to cope with serious outflows of funds, as prolonged market momentum renders their meticulous stock-picking styles ineffectual.
Cadiz had perhaps the most public fall from grace. Its executives seemed unable to stop the steady leaking of funds under management as its performance dwindled.
Eventually, in April this year, Stellar Capital, an investment company aligned with retail tycoon Christo Wiese, stepped in with a buyout offer pitched below Cadiz’s tangible net asset value.
Charles Pettit, CEO of Stellar Capital Partners, is confident that Cadiz can be resuscitated.
“We’ve bought into a turnaround. It’s a tough business, but ultimately there is the chance to secure annuity type income flows, which is the Holy Grail.”
Pettit argues that the chances of mega-mergers in the local asset management sector are remote, though a crowded market does mean some consolidation among smaller players is possible.
“At Cadiz, we think we have the right team in place to reverse outflows. We think organic growth is the way to go, and have plans to be disruptive in the market. I won’t comment on these plans yet, but Cadiz has a lot of talent in its team that perhaps was not properly utilised before,” he says.
Sygnia and Anchor might be hogging the spotlight, but investors might do well to look at some of the less-hyped players, who quietly ply their trade in niches that lie outside the shadow of the bigger asset managers.
They include Prescient, PSG Konsult, Vunani, Efficient, Peregrine and the recently listed N-Vest, which all hold viable niches.
Prescient, which has a substantial R67bn of assets under management, trades at an earnings multiple of 12,5 times with a yield of over 5%.
Peregrine, which owns other financial services businesses aside from its asset management hub under Citadel, trades at a 19 times earnings multiple and also offers a yield of over 5%.
The ratings on Efficient and PSG Konsult are a little headier, probably as a result of the market factoring in corporate action.
Vunani has toughed out a prolonged turnaround, and CEO Ethan Dube is determined the company will go it alone.
“Our fund management business is getting close to R20bn, and we are making money off it. Our recently acquired Fairheads business, which is largely an administration business, is stable and capable of generating annual net profit of between R60m to R70m.”
Dube, however, rightly warns that there is significant execution risk when undertaking corporate action in the asset management space, where people are key assets.
PSG Konsult, with Jannie Mouton’s opportunistic PSG Group as a backer, might be regarded as a prime candidate to move and shake in the sector. But PSG CEO Piet Mouton says its organic growth plan is working just fine.
Mouton sats PSG Konsult’s results for the six months to August showed assets under management up a sprightly 17% to R151bn, and assets under administration jumping 21% to R321bn.
But perhaps a more appropriate gauge of sentiment for JSE-listed wealth management stocks is the recent shift in the share price of Coronation, which has been the poster child for listed fund management endeavours.
After a near decade of consistent share price growth, driven by strong earnings and a generous dividend, Coronation this year suffered a sharp downward correction, dropping from a high of around R112 to around R69.
On fundamentals, this seems an unreasonable drop.
Aside from an embarrassing exposure to the collapsed African Bank, there’s not much fundamentally unsound about Coronation’s business model.
But the downbeat sentiment from Coronation’s executives probably spooked investors.
Last November, Coronation CEO Anton Pillay reiterated a warning that investors should expect lower returns from markets.
Pillay reminded investors that Coronation was a cyclical business highly geared to market returns, and shareholders shouldn’t expect earnings to grow every year off its high base.
Coronation has lost around 35% of its market value this year, yet its latest trading update suggests assets under management have grown 8% from R588bn from September last year to R636bn by June.
But crucially, Coronation already had R636bn of assets under management at the end of March, which means, for the first time in a long time, it has seen no quarterly growth.
Any suggestion that Coronation has stalled will reinforce the notion that new listings like Anchor and Sygnia are in strong positions to snatch
❛❛ It’s a tough business, but ultimately there is the chance to secure annuity type income flows