Skillfully navigating a rough patch
Things have been somewhat rocky for Coronation Fund Mangers recently, with its share price slipping almost 40% in the past 10 months. finweek considers what the company’s fortunes look like over the coming months.
founded in 1993 when 15 people walked out of Syfrets Managed Assets, Coronation is now a global asset management company offering a range of local and international products to institutional and individual investors. As at end September, it managed R610bn in client assets, up 3.7% from the year before.
The group, whose fortunes are closely tied to the returns of the market and the level of outperformance it generates on behalf of clients, saw revenue decline by 7% to R4.4bn in the year to end September as global growth deteriorated and investors withdrew funds from emerging-market equities and currencies, it said. International assets under management were up 11% to R141bn.
Diluted headline earnings per share were down 9.7% to 516c, while the dividend was cut by 9.7% to 516c. “Due to a decline in both market returns and the abnormally high level of performance fees generated in the prior financial year, revenue for the current period declined... This, in turn, led to a decline in diluted headline earnings compared with the record high earnings base achieved in the prior financial year,” Coronation said. The group’s share price is down 37% since the start of the year.
It warned that the recent levels of extreme market volatility are likely to persist, but that the longterm investment track records of all its key funds remained compelling despite the challenging environment.
While Coronation experienced reputational damage and saw some outflows of investor money following the collapse of African Bank Investments in the second half of 2014, on which it took a major bet and ended up with a 22% stake, it remains one of the top-performing fund managers in the country. It was ranked third for performance in the annual Alexander Forbes Global Large Fund Managers Watch for the five years to end September. Foord Asset Management was ranked top, followed by Investec Asset Management. Over the next year, investors will also be paying attention to the change in Coronation’s fee structures and benchmarks. From 1 October, the group changed the fee structures and benchmarks on a number of its funds, scrapping performance fees and shifting to fixed fees. Fixed fees are easier to compare, and clients know what they are going to pay, Coronation explained at the time. In addition, Coronation has also changed its benchmark to the FTSE/JSE Capped All-Share Index, which caps companies’ exposure in the index to a maximum of 10%. For the year to 1 October 2016, the cheapest of the “old” or “new” fee structures will be implemented.
Possible scenario: Coronation has breached the support trendline of its bear trend, after retaining key support at 6 485c/share, indicating that buying momentum is on the rise. The weekly relative strength index (RSI) has abandoned its long-term bear trend, which is a very bullish move. If support holds firmly above 6 700c/share, a recovery through 7 865c/share should be underway. Another good buying opportunity would be presented above 7 520c/share, with potential gains to the 9 500c/share resistance level in the short term (one to six months). Alternative scenario: A reversal below 6 500c/share could trigger panic selling to support at 5 530c/share. Next support would be at 4 620c/share.