Is Coro­na­tion plateau­ing?

Finweek English Edition - - KILLER TRADE - BY MOXIMA GAMA

Iknow a few in­vestors who are ‘mar­ried’ to Coro­na­tion Fund Man­agers – those in­vestors who are find­ing it quite dif­fi­cult to let go of the share, no mat­ter what hap­pens. Un­der­stand­ably so – it has been a re­mark­able suc­cess story over the past few years.

Coro­na­tion is an in­de­pen­dent as­set man­age­ment com­pany which has man­aged to build a good rep­u­ta­tion as an as­set manager of in­tegrity and, also, out­per­for­mance − reap­ing mas­sive f lows of funds, both on a re­tail and in­sti­tu­tional level. It now man­ages R636bn of as­sets on be­half of its clients, up from R198bn in Septem­ber 2010. But its weekly chart is in­di­cat­ing that the com­pany’s share price may be plateau­ing.

Coro­na­tion was named t he top listed com­pany on the JSE in 2013 and 2014 by the Sun­day Times, based on its per­for­mance and share­holder re­turns over a f ive-year pe­riod. It is a sim­ple busi­ness that fo­cuses purely on as­set man­age­ment – it does not run in­sur­ance, pri­vate bank­ing or cor­po­rate f inance busi­nesses on the side.

Its phe­nom­e­nal per­for­mance in re­cent years has led to an inf low of funds, forc­ing it to hire more staff to help cope with the growth. The com­pany has a unique re­mu­ner­a­tion model – fund man­agers are paid a low ba­sic salary by in­dus­try stan­dards (ini­tially R250 000/ year) but 30% of the profit is set aside for the bonus pool, ul­ti­mately push­ing its em­ploy­ees to per­form ex­cep­tion­ally.

In Au­gust 2014, Coro­na­tion was left with egg on its face af­ter tak­ing a very big bet on African Bank In­vest­ments Limited (Abil). Many of its unit trust in­vestors lost money as a re­sult of this de­ci­sion made by Coro­na­tion’s well-paid in­vest­ment pro­fes­sion­als – who then pub­li­cally apol­o­gised, pro­claim­ing it was a “hum­bling ex­pe­ri­ence”.

How­ever, that was cold com­fort for in­di­vid­u­als who lost their sav­ings. Per­haps that’s why Coro­na­tion is cur­rently fal­ter­ing, in­vestors may be los­ing trust. It warned in a trad­ing up­date in April that its di­luted head­line earn­ings per share for the six months to end March may be be­tween 5% and 15% lower than the same pe­riod a year ear­lier. The full re­sults are ex­pected on 19 May.


POS­SI­BLE SCE­NARIO: Coro­na­tion is tee­ter­ing on a key sup­port level at 8 825c/share – it has been con­sol­i­dat­ing for the past eight months. It may hold there, but would still have to trade above 11 520c/share to re­deem it­self. Oth­er­wise, the fi­nal shoul­der of a headand-shoul­ders pat­tern (a bear­ish re­ver­sal pat­tern) could form.

Breaching the 8 825c/share level could see Coro­na­tion ful­fil its down­side ob­jec­tive at 6 150c/share. But with the rel­a­tive strength in­dex (RSI) trad­ing within a sym­met­ri­cal tri­an­gle, volatil­ity be­tween 11 520c/share and 8 825c/share may persist in the short term. Keep a close eye on that 8 825c/share level. A LT E R N AT I V E S C E N A R I O : Coro­na­tion would have to trade above 11 520c/share to re­cover its losses and con­tinue form­ing new highs – the up­side tar­get would be at 14 215c/share. In this case, in­vestors should then stay long or reload.

R85.30 - R115.20


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