An­chor Group, As­sore, Car­track, Sibanye Gold

Financial Mail - Investors Monthly - - Contents - An­thony Clark

Can An­chor, which hit a high of R19 on the back of a se­ries of bolt-on ac­qui­si­tions in late 2016, sail the high seas again?

In 2016 its earn­ings drifted close to 65c a share, with 32c a share in tow. This re­turn was gen­er­ated on as­sets un­der man­age­ment of R46bn.

Then An­chor, and the small cap sec­tor, hit an ice­berg. An un­wind­ing of in­ter­est in “go go” small caps in early 2017 as the SA po­lit­i­cal and eco­nomic sit­u­a­tion started to wob­ble made many for­mer up­starts quickly fall from in­vestor grace.

In pop­u­lar small cap stocks such as An­chor val­u­a­tion bub­bles went “pop”. An­chor sank to a low of 280c — though in re­cent months the share has found some wind in its sails.

In the year-end re­sults to De­cem­ber 2018 the com­pany re­ported head­line earn­ings down 2% to 38.2c share. As­sets

un­der man­age­ment de­creased 6% to R49bn from R52.3bn at the end of 2017 as weak mar­ket per­for­mance and a volatile rand hit An­chor’s busi­ness (re­mem­ber, about 35% of its as­sets are off­shore).

But in the pe­riod An­chor changed tack on the Capricorn Fund Man­agers op­er­a­tion, re­tain­ing the do­mes­tic busi­ness and ex­it­ing the hedge fund side. Ul­ti­mately it was a costly ex­pan­sion­ary en­deav­our.

Over­all, An­chor used the 2018 fi­nan­cial year to re­flect. The busi­ness was tight­ened, costs were trimmed and ac­qui­si­tions were re­fined.

The good news — when one looks through the tele­scope at fu­ture prospects — is that An­chor clients seem to be ex­tremely loyal to the brand, so the as­sets are sticky. Monthly as­set in­flow con­tinue to run at about R400m, and IM un­der­stands An­chor has en­joyed an ex­cep­tion­ally good 2019 in terms of as­set in­flows. This should all aid man­age­ment fee in­come, though weak trad­ing vol­umes will hit the bro­ker­age di­vi­sion and prob­a­bly mean earn­ings re­main sub­dued in the first half of 2019.

So IM fore­casts an­other flat six months in terms of earn­ings — per­haps about 20c a share (which is not much dif­fer­ent from the first half of fi­nan­cial 2018). IM thinks sec­ond-half earn­ings should be bet­ter and over­all 2019 head­line earn­ings ex­ceed those of 2018. There should also be an im­prove­ment on the 22% oper­at­ing mar­gin of the past fi­nan­cial year.

Over­all, IM be­lieves An­chor has turned around — but ad­mit­tedly the stock is a hard sell in the cur­rent stock mar­ket en­vi­ron­ment.

It’s worth re­mem­ber­ing, though, that An­chor has a white knight at its side. As the share­holder base has un­wound over the past two years, about 25% of An­chor’s stock has been snapped by chair Mike Teke and new share­holder CV Part­ners, which is. aligned to the Hol­lard Group, a big hit­ter in the in­sur­ance sec­tor.

The key num­bers at An­chor also stack up. NAV at last re­sults (af­ter the Capricorn write-down) was 422c a share and net cash and in­vest­ments were worth about R140m. That num­ber was bol­stered by the one-off break fee from As­to­ria, whose man­age­ment An­chor re­lin­quished in ex­change for R73m ear­lier in the year. Of course, An­chor needs to make the As­to­ria cash earn its keep, and deals, IM hears, are afoot.

If An­chor does gen­er­ate a bet­ter 2019 earn­ings per­for­mance its earn­ings mul­ti­ple will be about nine. If solid per­for­mances con­tinue into the 2020 fi­nan­cial year with no im­prove­ment in sen­ti­ment, IM can’t help but see the big three share­hold­ers pon­der­ing a buy-out. ●

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