Crowning fund managers reported a 22% increase in overall earnings per share in the 12 months through September 2021 and increased dividends by about 23%, reflecting an 11% increase in assets under management to R634 billion by the end of the year.
Gross management fees amounted to R4.26 billion compared to R3.64 billion in the previous year.
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“Despite a challenging environment, the past year has been exceptional for Coronation customers and shareholders,” says Coronation CEO Anton Pillay. “Markets continued to perform strongly in 2021 after breaking out of March 2020 low base.”
It can be seen from Pillay’s comments that he remains cautious, saying that while the global economic recovery continues, the recovery is uneven, compounded by a significant divergence in policy support and vaccine deployment in developed and emerging economies.
“Although the economic outlook is positive, it should be viewed in the context of high risk and high asset prices,” says Pillay.
“The risk of new variants of the coronavirus, lasting inflation, the withdrawal of [supporting] Monetary and fiscal policy and rising geopolitical tensions create uncertain times.
“At the local level, the economy remains under pressure due to ongoing systemic risks, including unsustainable levels of public debt, corruption, the disrepair of state-owned companies, reduced burden, and rising levels of already high unemployment. ”Says Pillay.
And South Africans are not saving enough.
“Despite the very positive reporting period for our customers and shareholders, the pressure of economic lockdowns continued to exacerbate the plight of the already stressed local savings industry,” says Pillay.
“As a major industry participant, Coronation is likely to continue to reflect the SA savings industry exit experience as a whole. We hope that this will continue to be the case for the foreseeable future. ”
He mentions that Coronation actually saw 5% outflows of average assets under management, indicating that the fund’s total base grew largely as a result of strong financial markets and in-house expertise to deliver good investment returns. In essence, investors lost some of the strong growth.
Coronation reveals that during the 12 months under review, the MSCI All Country World Index increased 11% (in dollar terms), the MSCI Global Emerging Markets Index rose 18% (also in USD) and the local FTSE / JSE All index Share is up 23% (in rand).
Coronation claims that its portfolios outperformed the market and that the good ROI is the result of an unwavering commitment to long-term active investing, exclusive in-depth research, and the benefits that come from a stable and experienced team.
However, Pillay noted that, as an investment-led business, Coronation’s primary focus is to increase the value of the assets of clients entrusted to them over the long term, rather than simply seeking to increase the pool of assets under management.
The imperative of volume
Still, investors who prefer to manage their own equity portfolios and invest directly in the JSE will be quick to point out that asset management is also a volume-driven business. As assets grow, management fees follow.
The secret to happiness for an asset manager’s shareholders is that these management fees must grow faster than operating costs.
Coronation’s income statement shows that this was the case. Total operating expenses increased 8% compared to the prior year compared to a 17% increase in commission income.
Management says this was higher than normal due to high growth in the cost of an ever-increasing regulatory burden, as well as investment in information technology and systems.
Pillay notes that the company continues to invest in information systems and technology infrastructure, which is key to providing customer service in the new digital world.
Coronation notes that both its institutional funds and retail offering delivered excellent returns over the past year, but cautions that the economic outlook remains mixed.
“The global economy continues to recover strongly, supported by stifled demand, a tight labor market and strong consumer balance sheets. Key risks for investors are stretched valuations, inflationary pressures, and the ever-present risk of a new and more dangerous variant of the coronavirus.
“We expect the South African economy to remain under pressure, with formal employment growth significantly lagging behind the recovery in economic activity and the corrosive nature of structural headwinds such as cargo loss and bankrupt municipalities.” says executive management in its comment on the results.
“Despite this weak economic environment, we continue to find excellent value in emerging and domestic equity markets and domestic bond markets,” says Pillay.
“The volatility induced by Covid-19 created investment opportunities that do not arise often. As an active manager with a long-term horizon, we leverage many of these on behalf of our clients, resulting in outstanding performance across much of our product range, ”he says.
Coronation cautions that it expects inflows to the savings industry to remain subdued given growth constraints facing the South African economy and a general lack of confidence from domestic investors, which is likely to continue to depress investor demand for investment funds. long-term investment.
“In addition, the current exchange control limits applicable to managers of collective investment schemes may put us in a position where we will not be able to meet the full demand of our range of international funds denominated in rand in the future,” according to management. .
Shaun Murison, Senior Market Analyst at IG, says Coronation’s overall earnings growth of more than 20% reflects favorable market conditions in a “strong year” over the past 12 months.
“Shareholders are being rewarded with an increase of around 10% in the final dividend.
“That brings the total dividend yield for the year to almost 8.5%, a pretty attractive offering,” he says.
“Market reaction to the results is difficult to measure in the face of a volatile day, but the results were not a surprise given the forward-looking guidance issued as a precursor to today’s launch.
“The group’s outlook, however, paints a grim picture for the domestic economic climate,” he says, noting that it is affected by both external factors (the pandemic) and local headwinds (electricity supply).
“Low levels of personal savings and high levels of indebtedness could also have an impact on the growth of assets under management in the future,” he adds.
The Coronation share price itself shows the opportunities to come in March 2020. It hit a low of R25.50 after falling from R56 a year earlier, and rallied back to R55 since then.
Hear Simon Brown’s interview with Coronation fund manager Neil Padoa on this MoneywebNOW podcast (or read the transcript here):