Anchor Group, Assore, Cartrack, Sibanye Gold

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. ●