As South Africa’s second-largest multimanager, Sygnia Group, gears up for its debut on the JSE on October 14, it is almost inevitable that it would be compared to smaller rival Anchor Group.
As South Africa’s second-largest multimanager, Sygnia Group, gears up for its debut on the JSE on October 14, it is almost inevitable that it would be compared to smaller rival Anchor Group.
Anchor listed at R3 a share on the AltX in September last year – a premium of 50% compared to its pre-listing issue price of R2. Since then, the lucky few who managed to get their hands on some shares, have seen the share price skyrocket to R12.95 (at the time of writing).
Although liquidity has been limited, Bloomberg data suggest that it delivered a one-year return of more than 120%.
Anchor’s public offering came hot on the heels of other listings in the broader asset management sector, with PSG Konsult and Alexander Forbes coming to market in June and July 2014 respectively. (Alexander Forbes relisted.)
Early in August this year, Sygnia invited clients and supporters to apply for shares in the company. In a pre-listing statement published on October 1, it indicated that shares would be allocated at R8.40 apiece during a private placement.
The primary reason for the listing is to enhance the group’s public profile, brand recognition and public awareness, particularly with regard to its index-tracking capabilities. It also wants to strengthen its balance sheet to facilitate faster growth, access capital markets if required, retain key management and pursue its systems development strategies faster.
Will Sygnia be able to duplicate Anchor’s initial success?
Niël Hougaard, analyst and head of research at Autus Fund Managers, says a number of factors work in Sygnia’s favour. Firstly, management owns a significant portion of the company, which provides an incentive for them to grow the business.
Listed asset managers aim to grow assets under management, resulting in higher aggregate fees received and increased earnings. It is also a relatively simplistic and understandable business model, he says.
A company with a track record of successfully growing profits is an important indicator in the Autus investment process.
Sygnia started with less than R2 billion of assets in November 2006, which had grown to R137 billion by the end of June this year. Over the last couple of years, its compounded annual growth rate for institutional assets was around 16% and 27% for retail assets.
These three factors already reflect very positively on the company, Hougaard says.
While the group operates in the asset management space, it is fairly diverse and also has a brokerage arm, an insurance business and an administration platform.
The group has been running for roughly ten years and has a “pretty solid team”, adds Karl Gevers, head of research and co-founder of Benguela Global Fund Managers.
Sygnia’s CEO Magda Wierzycka and some of her team members worked side-by-side at African Harvest. Sygnia spun out of the latter group in 2006.
Sygnia’s primary passive or index-tracking solutions, is also “quite a relevant topic” at the moment. Fees in the asset management industry are under scrutiny and a lot of the larger active managers have been underperforming their benchmarks over the last few years, which make it a good time to come to market, Gevers says.
He is always a bit sceptical of new listings from a pricing point of view because companies wouldn’t list if it weren’t attractive for them to do so, he says.
But the way asset managers like Anchor have performed, hasn’t gone unnoticed.
Gevers says asset managers in general don’t need a lot of capital. Sygnia’s management is only selling a small portion of their shares and a significant free float is not coming to market. For long-term investors these kinds of businesses are quite attractive as they are “capital lite” and offer a high return on equity.
“It is not a bad business at all and I think long-term they should deliver,” he says.
At an anticipated market capitalisation of roughly R1.2 billion and profit after tax of R58.6 million (assumed twice the unaudited figure for the six months ended March 2015), the price earnings ratio would be around 20.
At a prelisting issue price of R8.40 a share and an aggregated headline earnings per share of 58.88 cents, the price-earnings ratio is around 14 and the PE could rerate to 20. The industry mean is roughly 17, Hougaard says.
Anchor listed on a forward PE of 7.6 and a year later it is trading at roughly R12.95 and a PE of 37.
Hougaard says this suggests that there is an appetite for these kinds of asset managers and a definite opportunity for growth. Asset management firms are typically also good dividend payers.
However, this shouldn’t be construed as an indication that Sygnia’s share price will necessarily follow a similar path to that of Anchor, he cautions.
Hougaard says in terms of share price, Anchor will probably be Sygnia’s main competition. Anchor’s assets have grown significantly which will support their earnings. However, its share price has run quite hard already.
Coronation has always been a favourite holding for Autus, but Coronation’s size has probably become somewhat of an issue and it will find it more challenging to repeat the performance of its heyday.
Gevers says while Coronation is under pressure from a performance point of view and one must consider the impact on its performance fees, in the long run it will always be a good player. Its share price has come back quite a bit given its current performance and fee structure, which will make it somewhat more competitive.
With other smaller competitors like Anchor on a PE of roughly 37, PSG Konsult on 30 and Alexander Forbes on 24, these companies are not cheap and the market is expecting a lot of growth from them.
“We will have to see what they deliver,” he says.
In general, they would definitely consider holding more than one asset manager in their portfolios, Gevers says, “but one has to be selective” and “take valuation into consideration”.
Hougaard says while it is difficult to know whether more asset managers will come to market, he expects some more consolidation. This may not necessarily translate into additional listings, but rather other companies like Rand Merchant Insurance (RMI), which operates in another field, getting into the market and buying out smaller boutique managers.