Anchor has the potential to recover

THE MARKET did not enjoy the last set of results published by Anchor Group in August, 2017. The graph of the past two years’ share price is also not a pretty picture – only going one way, and it is not up. In November, 2015, the share price reached almost R18, and today it is below R5.

Investment houses are usually highly correlated with the stock market in general, since their income is typically a percentage of assets under management, and often also performance fees, and if the market drops the assets are less.

Of course, this can be countered by inflows of funds and gaining market share. Most investment houses listed on the JSE did not do much in the past two years, because the markets moved sideways.

Furthermore, if investors are of the opinion that market valuations are very high, and there is a collective feeling that the market can drop in the near future, this can also be reflected in the share price of an investment house.

This is why companies such as Peregrine, Sasfin and Anchor are trading at quite low multiples. With the sword of downgrades and a possible adverse effect on local businesses, the sentiment is not positively inclined towards local investment houses.

Anchor is still a relatively young company, but they have an impressive team of seasoned analyst and investment managers. It has in a short period firmly established itself as one of the leading private client asset managers in South Africa and is investing heavily in growing its institutional business.

Anchor began managing assets in 2012 and had grown rapidly to reach assets under management and advice on June 30, 2017, of R49.4 billion. These are primarily private client and retail assets, with recent growth in the corporate and institutional markets. Anchor runs segregated portfolios, both locally and internationally, and has a series of funds in both the collective investment scheme (unit trust) and hedge fund categories.

The long-term strategy of Anchor is to become a major player in South African asset management, with an increasing focus on offshore investment.

Interim results

Assets under management and advice grew by 8 percent to R49.4bn, but headline earnings a share were down 39 percent to 22 cents a share. Anchor drew in an impressive 500 high net worth clients over the six-month period.

In an interview with Giulietta Talevi of Business Day TV the highly regarded chief executive of Anchor, Peter Armitage, was asked whether he was confident of attracting more assets.

“There are different parts to the business – equities, fixed income and offshore, and the offshore part of our business is growing very nicely. The difficult part has been domestic equities – if you look at the past 18 months of the market, you’ve had quite a rare combination of circumstances where domestic conditions and hence domestic equities have done quite poorly, and you’ve also had a stronger currency.

“Usually, when the one happens, the currency weakens and then that alleviates it. If things continue to get tough here and we go the wrong way politically, you’ll probably see the currency weaken, which would give people a rand return. No matter what the conditions are, there are always different things in which to invest and make money. If you’ve got a distribution capability and a force out there of people on the ground, you can raise assets.”

Last week, Anchor announced that they broke through R50bn of total assets after just more than five years of operation. Total assets at September 30 were R52.7bn.

All of the growth in assets in 2017 were of an organic nature. Increasing brand presence, sustained positive investment performance and intensive sales initiatives have resulted in a promising new pipeline.

From its inception, Anchor has always invested meaningfully in a high-quality investment process, with the backbone of a great investment team. This investment is producing results, and the company is developing a very credible track record.

The Anchor BCI Equity Fund is in the top-performing funds in SA in its category over three and four years. And I think the share price has the potential to recover – maybe not to its previous glory soon, but over time. At 490c it is a steal.