Is Coronation plateauing?
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.
OF ASSETS ON BEHALF OF ITS CLIENTS, UP FROM R198BN IN SEPTEMBER 2010.
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