Battening down the hatches
SHAREHOLDERS ????? HAVE GONE OFF investment houses and despite tempting single-digit valuations, they don’t feel compelled to rush back into the firms whose fortunes are very closely linked to those of the stock market. While the likes of Old Mutual, Sanlam and Liberty have taken flak in volatile markets, it’s the smaller players that have seen valuations more than halve over the past nine months.
Peregrine has seen the value of its shares drop off a cliff, Coronation has been plumbing new depths and specialist investment house Cadiz has also seen the value of its stock back at levels last seen in 2003.
Cadiz CEO Ram Barkai concedes in the group’s most recent annual report: “Cur- rent market conditions may not be conducive to growth in the short term.” Clearly, executive management is distressed by its share price performance, but Barkai insists the group will continue to follow a prudent approach ahead of the next growth phase in the market.
Trading on a multiple below five times, Cadiz has traded between 200c and 467c/share over the past 12 months. The stock currently trades at the lower end of that range, below its 2007 net asset value of 243c. While its current NAV is at its highest level ever, the reality is that investment firms are clearly bull market stocks – Cadiz peaked at 600c in February last year but has been sliding since.
Assets under management – thanks to its acquisition of African Harvest – have grown threefold to almost R50bn but it needs to manage costs. Its cost-to-income ratio is the highest it’s been in five years at 71% and employee numbers are more than 50% higher than they were in 2003. Barkai says the issue is a priority, but the group is focused on building a base for future growth. He points to the fact that half of its current revenue comes from annuity income – which isn’t a bad place to be in times of uncertainty.